In a market full of broken stocks, Mosaic stands out for looking relatively normal. So why exit? Here's three reasons why we kept our swing trade in MOS stock short and sweet.
MOS Stock Shows An Early Scent Of Success
MOS stock was on our radar for a while. At the end of 2020, it went on a run reminiscent of its strong move from 2006 to 2008. But as strong stocks often do, MOS took a break for a while by basing.
When we saw a follow-through day in the market on Dec. 15, MOS stock was still marking time below its 50-day line (1). That quickly changed. A week later, it broke above its downtrend and moved above its 50-day moving average for the first time in more than a month (2). It also broke through 40, an area of resistance from November (3). Finally, it tested support at its 21-day moving average (4).
For contrast, the Nasdaq composite began its current venture below the 50-day line around the same time. The market indexes showed a temporary bottom on Jan. 10. But as they struggled, MOS stock continued to trade tightly.
We added MOS stock to SwingTrader with a trifecta of positive action. A strong price gain through resistance, relative strength line moving to new highs with the price and an uptick in trading volume (5).
Why Sell If It Holds Up Well?
We took our first third profit in Mosaic the next day. It was a strong move at the open that faded as the day progressed (6). Both the S&P 500 and Nasdaq composite hit resistance at their 10-day lines at this time.
But MOS stock still powered higher. We took our second third off a couple of days later with a 5% gain (7). This ended up being around 25 cents from its peak, and the Nasdaq composite and S&P 500 both undercut their Jan. 10 lows that day.
Our final exit was the next day to protect our gains while the indexes worsened across the board (8).
So with Mosaic obviously doing better than the indexes, why not just hold the winner? Here are the three reasons why:
First, this is swing trading. As a position trade, you might look at the move lower as a normal pullback to the buy point. But we're looking for quick gains and take care not to overstay our welcome. We don't want to take on the risk of holding a stock if it still needs time to consolidate.
Second, the market lately has often favored quick profit taking. Our preference is to take our first two thirds off into strength as a stock moves higher and then, when appropriate, give the remainder room. This past year made it even more important with many breakout failures, declining breadth and constant sector rotation.
Finally, the weak market. So far in 2022, we've had success in some of the counter trends like energy, fertilizers and shipping that made gains in a weak market. But a weak market often takes everything down eventually. Your batting average suffers as fewer winners materialize, your winners make smaller gains while the increased volatility makes losses either larger, more frequent, or both. At the end of the day, you might be frustrated if your hard work doesn't translate into progress. (Please, see the video attached to this article for an interview on "The Mental Game of Trading" with Jared Tendler.)
Like fighting a riptide, you can expend a lot of energy going against the market trend. For now, we'll drift a bit and wait until our efforts have a better chance of being successful.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
