One of the best things you can say about this bear market is that it's left a raging bull beneath the surface. You don't have to drill too deep to recognize the strength in oil and gas. RRC stock is just one more swing trading example of that power.
RRC Stock Starts The Year Strong
Range Resources is a top producer of natural gas and natural gas liquid focused in the Appalachian Basin. There are plenty of arguments to be made on the fundamental side for the rise in oil and gas. But our swing trading analysis homed in on the technical setup for RRC stock.
Like many oil and gas stocks, RRC stock had a strong move to start the year. From its Jan. 24 low to its April 18 peak (1), it more than doubled. For the majority of the move, it remained above its 5-day moving average line.
No move lasts forever and a retracement is expected after such power. RRC stock dropped 18% in just a week's time but held its 50-day line (2). It recovered two-thirds of the drop (3) before taking another leg down and falling below the 50-day line (4).
But unlike many stocks trading below their 50-day lines, RRC stock was in a solid uptrend overall. That opened up the possibility of a swing trading setup.
Swing Trading Entry
Drawing trendlines can be more art than science. Generally, you'd like to see a trendline hit multiple points (at least three), with some distance in time between the points. For RRC stock, drawing a line through the April 18 peak (1) and May 5 high (3), also touches a few other daily highs on the line. A break above this line, can give you a strong swing trading signal that a pullback in the stock is over and a new move has begun.
RRC stock joined SwingTrader on May 25, a day before the follow-through day. Volume spiked higher and the relative strength line soared to new highs well before the price got to new highs (5).
Matt Caruso discusses expected returns and how to make sure they're worth the risk in this week's podcast.
Within just a couple of hours, we already had a 4.5% gain and locked in a third of the position with a profit. We took another third the next day (6) after hitting a 10% gain from our entry.
With the strong gain in RRC stock coming so quickly, selling a portion into strength can give you breathing room on the remainder.
In many cases, the 5-day moving average or the lows of the previous day or two act as a guide for swing-trading sell decisions. Those levels in effect become a trailing stop. But the tighter your stop, the more likely you will get shaken out.
The Decision To Exit
Extra volatility can lead to great swing trading gains. But it can also make it tougher to keep losses and drawdowns small. Even the 5-day line meant giving up a lot of profit in the case of RRC stock.
May 27 wasn't too hard a decision (7). The stock was up strongly and traded as an inside day to the previous day. But after the holiday, the market indexes weakened and many stocks that looked strong on the follow-through day started breaking down.
RRC stock at its peak had a 21.5% gain from our entry (8). But this time it flashed an outside day with a close near the lows. Though it didn't close below the 5-day line, we exited as it undercut the previous day's lows and saw our gain lose 10% off the top with another weak market day. Though oil and gas stocks have largely shaken off market weakness, we didn't want to push our luck with overly aggressive swing trading.
The next two days were both inside days (9) and RRC stock rose from our final swing trading exit. With tighter action, we may find another swing trading entry that allows us to play another run with limited risk.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
