Knowing when to sell stocks is just as important as knowing when to buy. And in 2022, some basic chart patterns among leaders in the energy sector helped disciplined investors discover a timely signal of a potential big move down.
IBD refers to these notable elements of price and volume as changes in a stock's character. They provide an early signal that it's time to take profits.
A breakout stock that's been powering higher, for example, may signal a character change by undercutting a moving average in heavy volume.
Another important change? A stock reverses lower in heavy volume after a long run-up.
In other cases, a stock might close in the bottom half of its intraday range on an attempted breakout.
Oil and gas explorers ran strongly higher from January through April of 2022. But with a pullback in commodity prices in the second quarter, many individual leaders' charts signaled the big run-up was over — at least in the short term.
When To Sell Stocks: HAL's Character Change
Halliburton cleared a 26.85 cup-base buy point in January 2022 and zoomed higher, holding well above its 50-day moving average for several months.
Shares ran up nearly 60% before hitting a new high of 42.60 in April. HAL stock consolidated and formed another cup base.
When did Halliburton's character change? The stock formed the left side of the cup in stronger volume and the right half of the base in lighter volume. Put simply, the stock's down days were occurring in heavier trading while the up days occurred in lighter turnover. This is the opposite of what you'd want to see for bullish stocks.
On June 8, 2022, HAL stock broke out again, but it rallied to new highs in low volume (1). On the breakout day, shares also closed well within the lower half of the intraday range — a red flag. HAL soon dove back into the base on higher volume.
On June 13, shares undercut the 50-day line in their highest volume in nine days (2). This too highlighted a bearish change. Shares continued trading lower in heavy volume. Indeed, the stock even undercut the 200-day moving average in heavy volume — the final nail in the coffin for its latest run.
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FANG Stock: Another Change In Character
Diamondback Energy offers another great lesson on when to sell stocks. Shares formed a shaky-looking base in April and May and tried to break out above the 148.09 buy point on May 27, 2022.
While the breakout looked strong and occurred in heavy volume, the next session saw a decisive sell-off in much heavier volume. FANG also closed near intraday lows. Volume escalated to the heaviest for a single day in all of 2022. FANG struggled to ascend above the 5% buy zone. It soon undercut the 50-day line and kept going lower.
This article was originally published Aug. 19, 2022, and has been updated. Follow Rachel Fox on Twitter at @IBD_RFox for more market insight and commentary on HAL stock.
