Just a couple of weeks ago this column featured Cummins. It was interesting not just as a past trade but also as a trade setting up. CMI stock ended up producing a 6% net gain in less than two weeks on that second try, vs. a small loss the first time. So what was different?
CMI stock is a good example of the influence the general market can have on whether your swing trading is successful.
CMI Stock Revisited
As a reminder, the initial trade saw CMI stock join SwingTrader on Oct. 4 after it moved sharply above its 50-day line and 200-day line (1). The relative strength line was at new highs and volume was at its highest level in nearly three months.
When CMI stock was up 2.5%, we took our first third of profit (2), then exited the next day (3) as it fell below our entry and the five-day moving average line. It wasn't working so we kept the loss small.
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An important clue presented itself when the stock market indexes made new lows on Oct. 13. CMI stock, by contrast, held its ground (4). It found support at the lows of our prior entry day and reversed bullishly over the 50-day, putting more distance between the stock and its September lows. From there, it tightened up over the next week.
The Secret To Success
CMI stock joined SwingTrader again on Oct. 21 (5) and had many similarities to our previous try. Volume was even heavier than our first attempt, and the relative strength line even stronger. Both were important elements of strength, to be sure. But what's not shown on the CMI stock chart is that we also saw a follow-through day on the stock market indexes.
That shift in tone led The Big Picture column to switch back to "confirmed uptrend." CMI stock wasn't even the isolated action on SwingTrader that day. Eli Lilly and ProShares Ultra S&P 500 ETF also joined the current trades list.
For CMI stock, we took our first third profit a few days after our entry (6) and then another third a few days after that (7). After the Fed announcement and subsequent press conference, the market shifted in a big way as did many stocks (8). This was also noted with another shift in The Big Picture to "uptrend under pressure."
Since we were looking at earnings coming out on Cummins the next day anyway, and the market was on shakier ground, we decided the risks outweighed the potential rewards and we exited the remaining third position.
After its earnings report (9), CMI stock fell hard early and though it finished off its lows, we would have seen all our profits evaporate.
Clearly, the market was a big difference between the two trades in CMI stock. But not just there. LLY stock, the SSO market ETF trade and an added position in Dollar General all finished positive too. Successful trades are favored when the market is strong, even if the rally doesn't last.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
