After a hard hit to growth to start this past week, the recovery looks a little lopsided. The Magnificent Seven stocks are once again masking some flat to downward-trending performance in the broader market. Rather than sitting out as most stocks take a break, an alternative is to just go where the strength is — even when it's narrow. To that end, we've been using the Direxion Daily NYSE FANG+ 2X Bull ETF to participate.
Magnificent Seven Stocks Ride Again
With so many ETFs to choose from, there are a lot of options to really home in on a targeted basket of stocks. It's easier to get more of what you want and less of what you don't. Whether you call them the Magnificent Seven Stocks or FANG stocks, there are ETFs that let you target that area when they are working. Technical analysis can be just as useful on these targeted ETFs.
When the market got its postelection bump, the Magnificent Seven stocks were big beneficiaries (1). But like a lot of stocks, they went through a cooling-off period with a couple of tests of support (2).
On the bounce (3), we added a leveraged version of the NYSE FANG+ index with the FNGG ETF on SwingTrader (4). In addition to the original FANG stocks, it includes more recent heavyweights like Nvidia, Broadcom and ServiceNow. Though already concentrated with just 10 stocks, we went with the leveraged version to get a stronger performance if we were right. At the same time, that means paying particular attention to risk management in case the trade doesn't work out.
This Trader Shares How Risk Management Helped Him Achieve Gains Over 900% This Year
On the technical side, the FNGG ETF cleared recent resistance around 166 when we added with the strong support at its 21-day line.
Add To What's Working
If you aren't finding many stocks to buy, sometimes it's best to just add to what you have. As the Magnificent Seven stocks added to their gains, we added to the position (4). But as we started seeing a lot of stocks getting extended, we trimmed back on our oversized positions to reduce our exposure (5). We expected a slight pullback but it never came.
As easily as we trimmed, we added back to the position when the ETF cleared its highs of the prior two days (6). But it couldn't follow up. So over the next two days we trimmed the position down and eventually exited (7). Again, the expectation was that we most likely needed to pull back more in price.
But when the Nasdaq composite jumped instead, the Magnificent Seven stocks were again at the forefront and we started a new position again (8).
It might seem like a lot of work and indecision. Instead, it's bending with the breeze of the market. Incremental adjustments along the way keep you participating as your positions move up. Adding back on positive expectation breakers removes your ego and shows willingness to correct mistakes. Staying where the strength is, and adding when appropriate, is what gets you outperformance over the long run.
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.
