It's still hard to find trends lasting long in stocks right now as the bears still control the current stock market. For swing trading, that means we've continued to mostly be on the sidelines. When we do venture into a position, like WING stock recently, we limit our risk and take profits quickly.
WING Stock Setup
Now matter how bad the bear market is, it's always a good idea to take a regular pulse of the market. The stock market can turn in a matter of days and knowing which stocks held up the best often gives you clues as to who could lead in the next bull phase.
After Wingstop gapped up on earnings in July (1), it faced a crucial test. Would it get turned away at its 200-day line again or overcome the resistance? The next month didn't give a definitive answer. WING stock rose for a bit but then round-tripped all its gains (2).
While a round trip isn't ideal, there were a few interesting points about where the selling stopped. It was right at the lows of the earnings gap and its 50-day moving average line. After getting support, WING stock saw a swell of volume come in (3) as it made a gain of over 30% in just a week's time (4).
Another Test Of Support
When WING stock pulled back again, the selling was pretty relentless (5). Out of 10 days, only one was up and even that was a weak try. However, there were enough positives worth noting. The selling stopped at a higher price than the previous pullback, keeping a decent portion of the progress. The volume came in much lighter, (6) showing a lack of conviction behind the selling. Finally, the 50-day line again acted as support.
That made WING stock at least worthy of watching. After the market indexes challenged their June lows and found support, we gave Wingstop a try on the rally attempt. The day of our entry it pulled back early in the session, along with the market indexes, but made it back to positive territory quickly.
After tight action along the lows, it created an outside day with power above the highs of the past week and it joined SwingTrader (7). It was also showing higher-than-average volume on its entry plus a relative strength line getting to new highs ahead of the price. The volume in particular made WING stock stand out since volume was absent in most stocks driving higher at the time.
But given the wide spread between the high and low of the day at the time of our entry, we were faced with a higher risk. Rather than skip the trade, we merely lightened up the position size to just three quarters of a our regular 9% position.
We also received market feedback and had a gain of over 4% within hours of our entry. Rather than getting greedy, we opted to take a third of the reduced position off into the strength. It also didn't seem necessary to let all the gains disappear, so we raised the stop to our entry price.
An Exit For Wingstop Stock
The next day, early gains on WING stock faded to an ugly close (8). It undercut our raised stop with just minutes to go in the session but we held it rather than send a late alert to subscribers.
While the jobs report loomed large, we still only had minimal exposure in the market so our risk was already reduced in case of a market fall.
And fall it did (9). We gave WING stock a little room at Friday's open to get a sense of its direction. It turned positive briefly but then plumbed its lows again and we removed it early in the session. The early action saved us from another 5% drop over the course of the day and kept the trade positive. In this market environment, that's a win for WING.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
