Stocks started 2024 on a sour note. While pullbacks often create opportunities, they aren't fun in the moment. One thing that often takes the pressure off pullbacks is selling into strength. That's what we did while swing trading BKNG stock and the reduced exposure helped us handle the market pullback with less destruction.
BKNG Stock Sets Up
The pent-up travel demand from the pandemic has been one of those assumed layups that hasn't been easy to profit from in practice. Booking Holdings is a slower mover than when the stock was known as Priceline. But it's hard to look at a double in about a year's time and be disappointed.
The most recent trade setup started around the Nov. 1 follow-through day as BKNG stock found support at its 200-day moving average line (1). As it conquered its 50-day line (2), the relative strength line headed in the right direction while market indexes took off in November.
But the initial thrust was short-lived. BKNG stock saw a downside reversal (3) in mid-November that led to weeks of flat action. That wasn't a bad thing. Many stocks got a three-weeks-tight pattern, offering another chance to get into the strong rally at the end of 2023.
Giving A Stock Room With Reduced Position
We added BKNG stock to SwingTrader (4) as it cleared the highs of its downside reversal that started the flat action. It started working immediately and we took our first third profit a couple of days later when we had a 3% gain from our entry (5).
Shortly after, we had a 6% gain from our entry and took another third off on the strength (6).
While it feels good to "ring the cash register" by booking the profits, you have to prepare yourself for feelings of regret if the stock continues higher. Since we still had a third of the position left, we still participated as BKNG stock continued to rise. Sure, a full position would have been more profitable but the reduced exposure helped in its own way.
In this week's podcast, Chris Gessel shares strategies for surviving market pullbacks.
Consider a sharp downside reversal in mid-December (7). BKNG stock closed a hair below its 5-day moving average and while we expected weakness to follow, our reduced position let us give the stock some room. And it ended up coming right back.
Surviving The Pullback
Then the pullback came to ring in the new year. When BKNG stock sliced through both its 5- and 10-day moving averages, we exited the remaining position without too much damage due to the light position (8).
The fact that we took profits into strength in a number of names like Booking Holdings, PulteGroup and the SPDR S&P Bank ETF left us lightly exposed overall. We found it difficult to replace the positions with fresh names as the setups dried up. The end result was over two thirds of our model portfolio in cash to start the new year.
So what now? If the pullback continues, we'll gain outperformance with the cash position. If we start seeing upside reversals and bounces at moving averages (9) that follow through, we'll have cash to deploy into new positions. We may not only survive but thrive in the pullback.
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.
