Oracle was one of those classic monster stocks of the late 90s. Its 300% move in just five months from October 1999 to March 2000 was legendary. While we don't have the same expectations for Oracle stock today, it doesn't mean it can't be used as a nice swing trading vehicle. Here's how we handled a recent move ahead of earnings.
Oracle Stock Rides Again
Oracle stock had a full decade of underperformance vs. the S&P 500 from 2012 to 2022. But with big-cap tech getting favored in 2023, it's had a resurgence.
A move started at the bottom of a handle (1) in a cup-with-handle pattern and was good for a 17% profit in just three weeks (2). Oracle stock followed up with a breakout from a four-weeks-tight area (3) to an 8% gain in just a couple weeks (4).
This did wonders for improving its relative strength line. It also got our attention as a leading stock to watch for another opportunity.
That came after a sharp pullback found support at its 21-day moving average line (5).
When looking at buys at pullbacks, it's important to note that we aren't looking for beaten-down stocks. We want strong stocks in uptrends and we wait for strength to show the stock is on the mend.
Oracle stock delivered in that regard. Its pullback was sharp but volume was relatively tame. As it crossed the 100 level (6), we added it to SwingTrader.
The relative strength line was also at highs and the volume showed an early surge. Both got even better throughout the trading session.
Managing The Trade
Oracle stock closed for a 6% gain on our entry day and we took our first third profit into the strength. That locks in some gains and helps manage the trade in case of weakness. We sacrifice bigger potential gains in order to manage our risk.
Another third came off as Oracle stock continued higher the next day (7), although it then reversed to close down for the day. It already had a 5% gain from our entry and with the bulk of the position locked in at a profit, we could afford to give the remaining position room to run.
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We also had to be aware that tech stocks, the leader of the market, were also generally extended. Just a look at the distance the Nasdaq composite or the Nasdaq 100 made above their 50-day moving average lines was a genuine cause for concern.
Oracle stock also gave us another reason to be wary. Its earnings report is after the close June 12. Since we don't hold through earnings, we knew our trade in Oracle stock had a looming expiration date.
Exiting The Trade
The action in Oracle stock continued in an orderly fashion. After some tight trading that held the 5-day moving average (8), it started moving to the upside again a couple of days later (9). But it's not the way the day starts that's the most important, it's how it closes. And most stocks closed poorly that day, including Oracle.
Oracle stock ended up holding above its 10-day moving average line, but there were plenty of reasons to exit that day. A big outside day, a downside reversal, an extended Nasdaq and looming earnings were the big reasons. Though it recovered and is at a higher price, sticking to our risk management rules was still the prudent decision.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
