When a bear market gets established, it's tough to hold on to positions for very long. It's hard to escape the gravitational pull of a market that wants to bring everything down with it. Here's our latest swing trading attempt with TT stock.
Swing Trading Example: TT Stock
Swing trading may help during bear market rallies, but even that's been tough lately. Trends in stocks and groups are getting measured in days, not weeks or months. Without a trend, staying mostly on the sidelines is the way to go.
Trane Technologies hasn't been subject to the tech wreck of 2022. TT stock is a member of the general industrial machinery group, and the industrial sector was home to some of the best swing trading stocks of the latest rally.
As the market indexes made new lows in October, Trane's lows were 15% above its lows from June.
This exhibition of relative strength is a good place to start your search early in a rally cycle. TT stock broke above both its 50- and 200-day lines just a few days after the follow-through day (1). In three weeks from its October lows, Trane stock was up over 30% to its November peak (2).
With a group move behind it, we stalked the action in TT stock as it went it sideways and consolidated its gains. It wasn't so much that it moved down to its 21-day line as the moving average rose up to the stock price to provide support (3).
After a strong bounce on volume, we put TT stock on SwingTrader after it decisively cleared the highs of the prior two days with a relative strength line at new highs (4).
Ghosts In The Machine
The problem with strong stocks in a bear market is that the gravitational pull eventually takes most things with it. That has certainly been the case with industrial stocks lately.
We've seen through much of 2022 many breakouts fail, sharp moves lower in normally sleepy stocks, and a destruction of former leaders that's hard to find outside of the financial crisis of 2008. It often starts, as with TT stock, when a stock struggles to make progress.
At its best (5), TT stock couldn't manage even a 2% gain from our entry before reversing. While the action viewed in isolation looks like a stock struggling to make progress, when compared with the indexes and other stocks it looks like they all got together to act in unison after the CPI report.
The next day wasn't particularly worrisome since it was an inside day (6). But then the indexes, stocks in general and TT stock in particular all seemed to undercut their recent areas of support (7). This prompted our exit from our lone stock.
While we've kept our exposure light for most of the year, the few stocks we've tried often failed due to correlation with market forces. Rather than doubling down when things don't work, we exit quickly and wait patiently for better conditions. The result this year is that we've maintained positive year-to-date performance even as indexes have fallen more than 25%. TT stock is just the latest symptom of the pervasive problem.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
