Buy low and sell high is often the simple instruction given for stock market success. Or in the case of IBD Founder William O'Neil, "buy high and sell higher." Swing trading adds another element. Even after a successful trade in a stock, it doesn't mean you can't go back and buy it again. That's what we did with Constellation Energy. Though we got back into CEG stock at a lower price, buying right with this powerful setup was the most important element.
A Strong Catalyst For Constellation
There has been plenty of excitement about artificial intelligence, cryptocurrency and electric vehicles in recent years. Less talked about, but getting more apparent, is the tremendous energy these technologies will require.
That's where Constellation Energy comes in. Its 125% gain for the year puts it right up there with AI giant Nvidia. After trading below its 50-day line during its summer vacation, CEG stock popped back above the line in mid-September (1).
To put an exclamation point on the importance of power, CEG announced a 20-year contract with Microsoft to power its data centers (2). Notably, the relative strength line flew to new highs along with the price.
Still, the gap-up over 20% held a lot of risk as a buy point. However, as CEG stock held the gains, it became more interesting. Especially after testing the 250 level and finding support (3).
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The next day it cleared the highs of the prior two days and it joined SwingTrader as a half position initially (4). Again, the relative strength line confirmed the strength as it reached new highs with the price.
As we immediately got traction on the new buy, we added an additional quarter position later the same day.
Locking In Gains While You Have Them
Constellation quickly founds its way to a 20% profit zone from its traditional entry and immediately showed a downside reversal (5). We took the opportunity to lock in the gains on our quarter position add just in case weakness followed.
Initially CEG held (6). But it plunged below its 10-day moving average line the next day and undercut the lows of the last few days (7). It was reason enough to take the profits while we had them with an exit at 266.48.
Gone But Not Forgotten
Our exit looked good, especially as Constellation fell another 6.5% over the next couple of days (8). But leading stocks should remain on your radar. At its lows on Friday, CEG stock found support at its 21-day moving average line and quickly reversed.
Upside reversals are one of our favorite setups for swing trading. The low offers an easy place to know when you are wrong and the entry is often early enough to get you a cushion before it hits a traditional buy point. In this case, our reentry into CEG stock was over 3% below our exit price. While it's nice to get back into a stock at a lower price, it was the setup itself that was the decision maker. Buying right is more important than buying low.
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.
