With the extra volatility in the stock market recently, it's been tough to get excited about many swing trading opportunities. CMI stock was a recent trade that started setting up again for a potential second try. The stocks that look the best out there are those that remained above their June lows when the indexes couldn't.
Swing Trading Example: CMI Stock
Like many stocks, Cummins started a downtrend last year after topping in March 2021. The July rally this year finally saw the stock make meaningful progress above its 200-day moving average line (1).
CMI stock tried to find support at the 50- and 200-day lines (2) as stock market indexes made their way back to new lows. Once it breached the lines, the 50-day line started acting as a ceiling and a line of resistance (3).
But once CMI stock broke through the line on volume, it joined SwingTrader (4). Notably when it bottomed a few days before, the stock market indexes were undercutting their June lows. The fact that CMI stock held above its June lows helped the relative strength line surge near highs.
Taking Profits Quickly
Our exposure has been light for most of the year and even our few ventures into stocks focus on quick profit taking. As such, when CMI stock was up 2.5%, we took our first third of profit (5).
That might not seem like much, but when your holding time is short, your profit targets need to be adjusted accordingly.
As it turned out, taking some profit when we did was just 50 cents from a near-term top. CMI stock lost significant ground as the trading session wore on after our exit and volume remained high on the downdraft.
The next day, CMI stock fell below our entry and the 5-day moving average line and we parted ways with the remaining position to keep our loss small (6).
The Divergence In CMI Stock
After a hot inflation report sent stock market indexes to new lows, CMI stock also had a wild day (7). But it looked very different. First, it got support at its 50-day moving average. Plus, not only did it have significant room above its lows of September, there was even more room above its June lows. That divergence from the S&P 500 kept its relative strength line near highs.
This divergence is also what helps identify leadership, whether this potential rally has just a few weeks, or even days, to it.
Even better the last week actually saw a reduction in volatility for CMI stock, making it stand out even more. Most of its action has stayed between 220 and 226 for the last week (8). So when it broke out of that trading range Friday, CMI stock got another shot on SwingTrader. But you can also expect the quick profit taking to continue.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
