With the stock market correction, the temptation for a flight to safety is strong. DE stock is often thought of as a slower stock, one that might be safer in a downturn. A recent swing trading attempt reinforces the idea that stock market corrections can take out even the slow pokey stocks. Which is why cutting losses quickly is paramount.
Shorter Shallower Pullbacks Are Attractive
With the extra volatility in the stock market indexes, it's natural to try to look for calmer waters. That was one of the appeals of Deere stock.
Though DE stock bumped its head against its 50-day moving average line in February (1), it was improving its price action over the next month. After spending more than 20 days below its 50-day, the earnings report for DE stock sent it soaring above the line in a powerful fashion with spectacular volume (2).
But it didn't hold. Still, DE stock didn't give up much ground and instead skirted along its 21-day moving average. The time DE stock spent below its 50-day line was shorter, just five days. And shallower.
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When Deere jumped above its 50-day line again (3), it also quickly fell back below it again. But DE stock didn't stay there long and it didn't come down as much.
What's more, DE stock started seeing its moving average lines start bunching up together. Moving averages coming together can be a signal of tightening price action. It was enough to pique our interest.
A Flawed Entry For DE Stock
Given the tighter action, we took a chance on DE stock as it took out the high of the prior week (4). The volume also looked strong as we added it to SwingTrader early in the session.
There was one flaw. The 50-day line was in a downtrend. That line can be more sensitive as a stock starts tightening up. Like in this case, DE stock topped out at 432.89 on our entry day. A close at 436 or higher would have been enough to turn the 50-day line back into an uptrend. But that's not what happened.
The market indexes showed downside reversals with losses around 2% or more for the day. DE stock by contrast was down just 0.7% and still above our stop from two days prior. We decided to give it one more day. Our current trades list was already down from seven stocks to three. Those three were the stocks that held up best.
Cutting Losses Quickly
As the banking crisis started to take hold, nothing was spared and nothing was safe. We gave DE stock a 10-minute grace period as it opened down the next day through our stop (5). But it couldn't manage to get support so we exited with Deere down 2% for the day before things got worse. And they did get worse as the day wore on. At the close it was down over 6% as volume swelled. So much for slow and pokey.
Nothing is safe, which is why cutting losses while they are small is so critical.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
