Oracle (ORCL) was one of those classic monster stocks of the late 90s. Its 300% move in just five months from October 1999 to March 2000 was legendary. Although we don’t have the same expectations for Oracle stocks today, that doesn’t mean they can’t be used as a good swing trading vehicle. Here’s how we handled a recent move ahead of earnings.
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Oracle Stock rises again
Oracle stock has seen a full decade of underperformance against the S&P 500 from 2012 to 2022. But with large-cap tech favored in 2023, it has seen a resurgence.
A movement started at the bottom of a handle (1) in a mug model with handle and was good for a 17% profit in just three weeks (2). Oracle stock followed a breakout in a tight four-week zone (3) to an 8% gain in just a few weeks (4).
It did wonders to improve his relative strength line. It also caught our eye as a top stock to watch for another opportunity.
This came after a sharp pullback found support at its 21-day moving average line. (5).
When looking at buys on pullbacks, it is important to note that we are not looking for beaten stocks. We want strong stocks in the uptrends and expect strength to show the stock is on the mend.
Oracle stock delivered in this regard. Its recoil was clear but the volume was relatively moderate. As he crossed level 100 (6)we added it to SwingTrader.
The relative strength line was also at highs and volume showed an early increase. Both improved further throughout the trading session.
Manage trade
Oracle stock closed with a 6% gain on our entry day and we took our first third of profit in strength. This locks in some gains and helps manage the trade on weakness. We sacrifice greater potential gains in order to manage our risk.
Another third cleared as Oracle stock continued to climb the next day (7), although it then reversed to close for the day. It already had a 5% gain since our entry and with most of the position locked in profit, we could afford to give the remaining position some breathing room.
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We also had to be aware that market-leading technology stocks were also generally stretched. Just one look at how far the Nasdaq Composite or the Nasdaq 100 had moved above their 50-day moving average lines was cause for real concern.
The Oracle stock also gave us another reason to be wary. Its earnings report is after the June 12 close. Since we don’t hold earnings, we knew our Oracle stock trade had an impending expiration date.
Exit the trade
Oracle stock action continued in an orderly fashion. After some tight trading that held the 5-day moving average (8)it started to climb again a few days later (9). But it’s not how the day starts that matters, it’s how it ends. And most stocks closed badly that day, including Oracle.
Oracle stock ended up holding above its 10-day moving average, but there were plenty of reasons to get out that day. A big day out, a bearish reversal, an extended Nasdaq and impending profits were the main reasons for this. Although it rallied and at a higher price, sticking to our risk management rules was still the prudent move.
More details on past trades are available to SwingTrader subscribers and testers. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
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