With stocks continuing to get pummeled, is Mattel stock worth swing trading? Or is this a toy best left alone?
Swing Trading Example: Mattel Stock
Mattel sticks out for how well it's held up in the current market correction. Considering market indexes fell 20% or more and many former leaders dropped 80% or more, Mattel stock sticks out for its resilience.
Even its latest base corrected just 16% from its February high (1) to its low in April (2). And though Mattel stock gave up its 50-day line in that base, it held above its 200-day line. That puts it in the minority since most stocks have traded below that line in the correction this year.
Investors could have looked at the move back to its 50-day line as an aggressive entry (3). After all, it was breaking a downtrend. But it's good to be cautious when a stock gets back to the 50-day line after trading below it. Although touted as a line of support during uptrends, it can be a line of resistance for stocks as they start downtrends. Plus, Mattel stock had earnings coming in just over a week's time, at the end of April.
Earnings Can Be Catalysts
Once Mattel reported earnings, things looked more interesting for Mattel stock (4). First, the 50-day line was no longer a potential area of resistance. It cleared the line handily with volume behind it as well. The earnings report included a return to profitability compared to the same quarter the prior year on net sales that topped $1 billion for the quarter.
On this week's podcast Jim Roppel explains why you need patience during corrections as well as optimism for the next bull market.
The results topped analyst expectations and came alongside positive comments from CEO Ynon Kreiz that a turnaround was complete. Between slashing costs and overcoming supply chain disruptions, not to mention reestablishing the license for Disney princess dolls, Mattel stock had a reason for analyst upgrades.
Still, we desired proof that investors were comfortable with the higher valuation. Our proof came as Mattel stock tightened up over the next few days and gave up little ground from its gains.
We added it to SwingTrader (5) as Mattel stock surpassed its recent highs around 25. It had higher volume coming in since the earnings report and a relative strength line soaring to new highs.
Taking Profits Into Strength
As good as the action looked on MAT stock, the market direction was still overwhelmingly negative. You might be lucky enough to find the few stocks that buck the trend, but the headwinds often reduce the reward while increasing your risks. That's why we've had reduced exposure this entire year and remain quick to take our profits.
Mattel stock was no exception. Once we had a 3% gain, we locked in a third of our profit (6). We nearly locked in another third the same day as Mattel stock reached a 5% gain from our entry, but that happened right at the end of the trading day.
While we prefer to take profits into strength, think of it as offensive selling, we also don't want to give stocks too much room before we sell defensively to protect our profit.
A couple of days later and Mattel stock challenged its 5-day moving average but closed above it by the end of the day (7). Holding here seemed reasonable due to the strong close but it did act as a warning.
When Mattel stock opened below the 5-day line the next trading day and continued to worsen, we removed our remaining position as it came back to our entry (8). Once we have a 5% gain, we don't want to see the stock go negative on us.
But we also don't lose sight of the stock either. Mattel stock continues to hold up much better than the market. It came in lower after our exit but then found support at its 21-day line (9). That set it up for a return to SwingTrader on Friday.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
