Wed. Apr 17th, 2024

Maybe the summer doldrums haven’t quite ended for the general indexes. But oil stocks were the sleeper hits of the summer and have flexed their might again in October. Here’s how we handled a recent swing trading opportunity in Weatherford (WFRD) and why we took the profits quickly.


Oil Stocks Bring The Energy

While tech stocks, especially artificial intelligence names, have captured investors’ imaginations, some of the non-tech stocks have been stealth performers. That was especially true this summer. WFRD stock was a leader among oil stocks as it peaked in September with a relative strength line ascending at a steep angle (1).

Oil stocks had a brief attempt to shake off weakness at the end of September and that pushed the relative strength lines on names like Weatherford even higher (2). Unfortunately, it didn’t last. Most oil stocks broke below their 50-day moving average lines and seemed to make bottoms right around the Oct. 6 follow-through day (3). Security software was a particularly strong group that day.

But after Hamas attacked Israel, oil stocks quickly caught up. WFRD stock broke a downtrend and cleared its 5-, 10- and 50-day lines with higher than average volume (4). That earned it a spot on SwingTrader.

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From there, oil stocks had a strong run. But we still were still diligent about taking profits along the way.

Swing Trading Rules For Profit Taking

Our first trim of Weatherford stock came a couple days after our entry with over a 2.5% gain (5). As usual, we took a third of the position off to lock in some profits.

As oil stocks continued to gather strength, it was notable that the relative strength lines on many members hit new highs ahead of the price (6). That’s normally a sign that you’ve picked the right stock. But we also had to temper our enthusiasm. At that point WFRD stock was on its sixth consecutive daily gain and getting well extended.

That led to our second third coming off with a 5% gain from our entry (7). It was a weak close for WFRD stock that day and the next (8) but locking in profits on the majority of the position gave us flexibility for handling the rest. Still with the eighth consecutive daily gain, we assumed a digestion of gains in the oil stocks was due.

When WFRD stock broke below the 5-day moving average we made our exit (9). Could this digestion be short-lived for the oil stocks? Absolutely. But we didn’t really have much time to sit in Weatherford before its earnings on Oct. 24.

We gladly pocketed the gain and left grateful to have it in an environment where the indexes and most leading stocks broke down harder. If oil stocks, or any other sector, starts reasserting itself with a strong relative strength, we can hopefully replicate the swing trading procedure again.

More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.


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