When most people think of swing trading, stocks with big moves and lots of volatility might be what comes to mind. But a recent trade in insurance stocks through an ETF made a fine profit. How do you determine if it's enough? Relative strength is a good gauge as to whether your investment is paying off.
Swing Trading Example: Insurance Stocks
Insurance stocks have been one of the sleeper hits of the year. In fact for 2024, the SPDR S&P Insurance ETF is up 37% vs. 27% for the S&P 500. Even with it being spread out in a generally slow moving space, it has outperformed. And it's been a relatively easy trade. Most of the year, insurance stocks have spent their time above their 50-day moving average lines.
The latest venture below the 50-day (1) was very short-lived. Just four days were spent under the line beginning on the last day of October. As financial stocks saw a big jump postelection (2), KIE participated but its relative strength line still had a ways to go to retake recent new high territory. By contrast, the SPDR Select Financial ETF and SPDR S&P Bank ETF had relative strength lines jumping to new highs. That was reason enough to pass on the insurance stocks initially.
Mike Webster shares how he uses the relative strength line to make decisions
A week later, insurance stocks were consolidating gains and the relative strength line shifted. KIE started to look a lot better as its relative strength line poked to recent highs (3).
The insurance stock ETF joined SwingTrader the next week as it broke out of its flat consolidation with the relative strength line continuing to trend higher (4).
Quick Trade With Quick Profits
With a lot of stocks trending well, we've leaned on some longer holding times than we normally would with swing trading. But we're still taking profits when we have them on plenty of positions. That was the case for KIE. After five consecutive days of gains, we booked our profit on the position (5).
Since we were pushing the limits of our exposure at the time, it required careful consideration of where money would be rewarded best in the short term. Between the winning streak and KIE reversing from its highs on the day, it seemed likely that a pause would be in order for the insurance stocks and it let us keep positions elsewhere as well as add new ones.
While usually thought of as too slow for swing trading, the relative strength line during the time of the trade only went higher. That means we got outperformance vs. the S&P 500 by taking on the KIE insurance trade. In the end, the relative strength line is not only useful for determining stocks to get into but also whether the decision was a good one.
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.
