A few weeks ago, we talked about 3M in this column. The discussion for this Dow Jones Industrial stock was that its lower average true range made it more attractive while the market was in a correction. The column also noted that 3M stock seemed worth keeping on the radar. Less than a week later, 3M proved why that was a good idea
Stocks Are Not People
When 3M gapped up on its last earnings report (1), the digestion of gains was constructive. On Aug. 5, everything looked pretty bad intraday on a huge volatility spike due to multiple issues (2). But we used the recovery on 3M as it crossed the high of the upside reversal as an early entry (3).
We knew it was a riskier entry that early. That's why we went with a smaller position and a less volatile stock. Plus if it was going to work, our expectation was that 3M would either move quickly or we would exit. The decision was easy after 3M dropped the next day and we exited while our loss was minimal (4).
Matt Caruso explains why relative strength rules his list of indicators.
If you got stood up on a first date or it went horribly, you might not be willing to give that person a second chance. But stocks are not people. If the thesis remains intact and another entry presents itself, it's often worth it to try again.
Second Chance On 3M Has Better Result
Less than a week later, 3M joined SwingTrader again (5). Same stock but different environment. This time we had a follow-through day occur on the same session as our entry. That increased the chances of our buy working, even with another early entry.
The trade had a very different result. Our early entry got us a bit of cushion before 3M stock cleared resistance at recent highs (6). The worst day as it ran up was down just 0.5% and even that was an inside day (7). If anything, our temptation was to switch out of 3M to a faster stock.
When the Nasdaq composite started trading below its 50-day line, 3M continued making 52-week highs (8). But given the solid gain we had for the trade, we decided to trim part of the position. Though 3M stretched further, this week started with a dramatic shift in market prospects. We exited the remaining position to retain our profit (9).
Locking in some profit into strength and the remainder on weakness gave us an exit with an average 6% profit.
Did we nail the top? No. But that's never our expectation. Getting within 2.5% is good enough and certainly justified the decision to give 3M another chance.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.
