Many times with position trades, it’s the strongest stocks out of the gate that deserve to be held as core positions. For swing trading, however, we often will look at unusual strength like a toddler with a Christmas gift. Take it. Be grateful. Move on to the next. That was the case for Pfizer stock.
Swing Trading Setup For Pfizer Stock
Even though Pfizer (PFE) is in a lot of headlines right now due to the coronavirus pandemic, it hasn’t had stellar performance vs. the S&P 500. You can tell just by looking at the relative strength line of Pfizer stock for the last few years.
But a recent move seemed to change that. As it carved out a cup base, Pfizer stock showed an early sign of strength by breaking above its declining 10-day line (1). It followed that up with a strong earnings report that led it to break above its longer-term 50-day moving average line (2).
The day after Thanksgiving, concerns over the omicron variant slammed the market. But not so for Pfizer stock, which gapped up for a 6% gain and decisively broke out of its cup base (3).
Volatile Market Punishes Portfolio Progress
Volatility in price movement for the Nasdaq composite increased significantly since its Nov. 22 top. Sure, some stocks are working. But the choppy behavior can easily whittle away your portfolio with a string of losses. All the more reason to lock in gains when we have them.
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Pfizer stock took turns rising and falling for a while. Eventually it found support at its 21-day moving average line and broke above its 10-day line amid strong volume (4). Pfizer stock joined SwingTrader that day. Pfizer stock held up and improved its relative strength line even as we were taking small losses in our very few positions. (The accompanying video offers analysis on Pfizer stock the day it joined SwingTrader.)
Too Much Of A Good Thing?
But still, we focused on taking the profits quickly while we had them. Given that Pfizer stock doesn’t tend to be a big mover, we took our first third profit with a 2.5% gain (5). It just kept getting stronger throughout the day and within a few hours we had a 5% gain. We took another third profit and the stock kept going with nearly a 6% move for the day.
The next day PFE stock just kept marching higher with a 4% gain for the day (6). By the time we hit 10% profit, in just a few days, we felt it was showing unusual strength. Maybe too much of a good thing.
Part of this is also based on history for Pfizer stock. Historically, it tends to put in a short-term top most often when it gets extended 4% from its 10-day line. In second place is when it gets extended 8% above its 10-day line. Given that Pfizer stock was more than 12% from its 10-day and the market was faltering after a follow-through day, it seemed prudent to exit. We treated it like an early Christmas gift that we didn’t want to return.
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