The rally that started 2023 shifted focus back to growth and technology stocks. CDNS stock was among our early swing trading buys and the moving averages tightening up together put this on our radar.
Stacked Moving Average Lines Get Conquered
When viewing moving averages, you'd like to see the shorter-term moving averages above the longer-term lines. That signals an uptrend. But before that happens, you might see the moving average lines all come together.
That's what happened with Cadence Design Systems. It was in a pullback from its December highs and when the market saw a follow-through day Jan. 6, the moving average lines on CDNS stock were all within a percent of each other (1).
The next day, we added CDNS stock to SwingTrader as it decisively jumped above all its moving average lines and broke its short-term downtrend line on heavier volume (2). We didn't get immediate traction on the stock, however. It mostly traded inside the range of our entry day and by the end of the week, we still didn't have much progress (3).
Taking Profits Into Strength
But then CDNS stock started picking up the pace. We locked in profits on a third of the position after it hit a 2.5% gain from our entry (4). It immediately followed up with continued strength and we took another third when we had a 5% gain (5). Locking it in when we hit 5% helped us handle the downside reversal that day and we decided to let this one run.
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The strength also had its effect on the moving average lines. They went from being all jumbled together to a proper stacking. The short-term moving averages were creating space above the longer-term moving average lines.
After another week's time, CDNS stock reached our 10% profit target (6). But since the 5-day line contained the move and we already reduced the position due to profit taking, we continued to hold the stock. We also didn't have much tech exposure and so we gave CDNS stock a little more room and used the 10-day line as a warning signal.
The Final Exit For CDNS Stock
After finding support along the 10-day line, we had to face facts. A strong January left many of the best stocks extended. When CDNS stock started pulling back, initially it got support at its 10-day line and didn't even close below its 5-day line (7).
But we exited our remaining third after CDNS stock started Feb. 7 weak and spent the first 90 minutes of the trading session making lows for the day (8). A few other factors also came into play. The intraday chart put the stock under its 10-day line and under the lows of two days prior where it got support. We already knew stocks got extended but we also had to contend with Fed chair Jerome Powell speaking. Concerns were out there that the strong jobs report might lead to a change in tone.
To be safe, we exited ahead of Powell speaking. CDNS stock ended up reversing along with the market on Powell's comments. But it was hard to be too disappointed. With our early profit-taking, we still got a 5.75% gain on the trade with a slow and steady move.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
