With the Nasdaq composite and S&P 500 testing their 21-day moving average lines, swing trading will naturally shift toward defense. Some of this might be rotation but we sold some positions earlier this week to lock in profits. CrowdStrike was one of those and the early sell saved us from a big drop.
A Comeback For CrowdStrike
CrowdStrike was a 2023 standout stock. It doubled from a breakout last summer. When it started moving, the general market itself was on a break. The move culminated in an earnings-induced gap up, a 23% gain at its peak for the day (1).
Then it started carving out a base with just a 23% depth. That might seem like a lot, but given the move CrowdStrike had, it really didn't give up much of its massive gains. While part of that base formed beneath the 50-day moving average line, the majority was above it. There were a few tests around 320 and when it broke through that level, we added it on SwingTrader (2). Though it was still off its highs, the relative strength line wasn't far from its highs.
Want more earnings info? Watch the new Earnings Cheat Sheet video.
It didn't close great on our entry day but neither did the Nasdaq composite. After a brief pullback to the 5-day moving average (3), CrowdStrike popped back above our entry and started to make quick progress (4). In fact, the next day we added to the position (5) as it made a closing high and the Nasdaq composite stretched itself into all-time highs on a follow-through day. The relative strength line on CrowdStrike also pushed to new highs.
What To Watch For In Earnings Season
Earnings season is notoriously fraught with peril. Not only do you have to worry about earnings for your stock but also related stocks, competitors, suppliers and largest clients. When Palo Alto Networks reported its earnings in February, it dropped 28%. CrowdStrike fell in sympathy to the tune of 9.7% but rebounded well at its 50-day line.
This time around CrowdStrike felt the pressure again on Palo Alto earnings, but rebounded to close with a gain (6).
We decided to lock in some profits from our add as CrowdStrike came in a little but we held the bulk of our position (7). Another trim happened a few days later (8). It's not that CrowdStrike was doing anything wrong but it was also staring down its own earnings report June 4 after the close. Plus more competitors were upcoming with Okta after the close that day and Zscaler the next.
The reduced position in CrowdStrike helped us leave the trade profitable. As Okta fell 7.8% after its earnings, CrowdStrike came down with it even harder. Our profit-taking left us with a reduced position and we reacted quickly by peeling off the remainder around 338 (9). Just as it was undercutting the lows of the past week.
It only got worse from there closing at 315. Reducing the winning trade and reacting quickly when it went south helped us leave with a healthy profit. And a healthy lesson on watching other earnings in addition to the stocks you own.
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.
