February ended up being the worst month in performance for the S&P 500 since April 2024. So how did we end up with gains for the month on SwingTrader? Taking profits quickly and reducing exposure as the correction unfolded before the damage was down. Our best performer was Palantir.
Holding it for the entire month would have seen a gain of 50% go right back to flat. We opted to take a more than 10% gain in just a week's time.
Pullback After Earnings Offers Entry
As February began, Palantir Technologies was just under new-high territory and its relative strength line was already breaking out to highs (1). The biggest problem was that earnings were happening the next day.
After a positive reaction with a 24% gap up (2), we were looking for a consolidation of gains as an opportunity for an entry. It was a fleeting pause of just one day. As we saw Palantir move sharply higher and surpass the highs of the previous day, it joined SwingTrader (3).
We recognized that as a stock that moves a lot, there was a higher risk with Palantir. But we had already built a cushion over the S&P 500 for the year so we had some chips available to get more aggressive.
Still, one of the best ways to reduce the risk is to start trimming stocks into strength.
Locking In Profits On Palantir Stock
We make it a general rule to not take profits on the first day of owning a position, unless there is a profit gift too good to pass up. Once we are beyond that, we start looking at taking a profit based on the Average True Range (ATR) of the stock.
The first profit came the day after our entry and we trimmed a quarter position when we were up 1 ATR and another quarter when we were up 2 ATRs (4). Since Palantir is a stock that tends to move a lot, that meant we were trimming right around 10% profit from our entry.
Though it was a poor close for Palantir that day, having locked in some profits made it easier to head into the weekend with the position at just half its original level.
As the stock got weak the next trading day, we trimmed another quarter only to see it finish strong and back at the level or our initial trims (5). With the risk largely reduced due to the smaller position size, we could afford to give the position more room from there.
Exiting The Trade
After a week's time, Palantir edged up slowly and we decided to take our final quarter off with a healthy 2.5 ATRs of profit or 15% from our entry (6).
This meant the next day we missed out on another 5% gain (7). That's the risk you take when you sell into strength. But we know we won't get the top price on our exit.
It was an easier pill to swallow when things came down sharply the next day (8). As Palantir came all the way back to its 50-day line, rather than letting the position take a round trip, we got a more than 10% gain for the trade in a week's time. Considering that February ended negative for the S&P 500, this strategy of taking profits into strength served us well to stay positive for the month.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.
