A portfolio is a lot like a garden. Sometimes you have to do some weeding to let the flowers thrive. Skechers found its way on our list due to its relative strength. But when it didn't move as strong as the market, we took our profit to move on to new ideas.
Skechers Starts Running
The April correction that unfolded in the major market indexes hit most stocks. Skechers was no exception.
In fact, it went through its 50-day moving average line before the major market indexes did (1).
But a strong gap-up after its last earnings report (2), put the stock right back above its 50-day line as well as its short-term moving averages. This, again, was before the indexes rose. The relative strength line reflected the power relative to the S&P 500.
Not that the indexes were slouches that day. They had their own power. However, the session didn't qualify as a follow-through day for the major market indexes due to volume being lower than the previous day. But many panelists on IBD Live referred to it as a follow-through day "in spirit." Additionally, The Big Picture started raising exposure levels that day.
We waited for Skechers to settle down after the gap-up, which it did. Then as the Nasdaq composite rocketed above its 50-day line on May 3, we were looking to add exposure. Skechers was a prime candidate. After drifting down a few days Skechers popped above a downtrend and we added it to SwingTrader (3). Its relative strength line was still showing power.
We went with a half position because there were a lot of areas showing promise and we wanted to add to the stocks that proved themselves.
Why Up Wasn't Good Enough
Skechers didn't immediately soar. That was OK because the major indexes also took a pause and consolidated their rapid gains from their April lows. The fact that it held its short-term 5-day moving average kept it on our current trades list (4).
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As Skechers moved higher, it started wedging up a little along its lows. It was still moving higher but more begrudgingly.
On May 14, the Nasdaq composite powered to a new closing high. Skechers was up but closed in the lower half of its trading range for the day (5).
Even worse, when the indexes powered to all-time highs on May 15, Skechers didn't join them (6).
At that point we had plenty of stocks waiting in the wings as potential adds. But we didn't want to use margin right away for the model portfolio. That meant we had to pare stocks that were of lower quality and Skechers was among them.
A stock doesn't have to be broken to get removed from your portfolio. Sometimes it's just a matter of wanting to direct your hard-earned money elsewhere.
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.
