Dexcom (DXCM) was one of the leading stocks from 2019 to 2020 but then went nowhere for nearly a year. While it's less frequent to see leaders last through multiple cycles, Dexcom stock showed enough resurgent strength to earn it another look. But even that had its limits for swing trading.
XEarly Clues On Dexcom Stock
Among the stocks associated with treating and managing diabetes, Dexcom stock is often part of the discussion. Though its relative strength line lagged for the first half of the year, a cup-base breakout at the end of June shifted the technical picture. Especially after its earnings report in July.
After moving higher following its earnings report, DXCM stock consolidated in a nice flat base with a depth of just 10%. It saw a few tests of its 50-day moving average line and the one after the Oct. 14 follow-through day showed the best closing action and volume behind the bounce (1). The bounce proved productive with a move past an earlier area of resistance (2). However, we didn't take action here because earnings were right around the corner.
After the earnings report came out, we added Dexcom stock to SwingTrader early in the session (3). Initially, it didn't have a great reaction. It jumped at the open, rose, then fell quickly. It's recovery intraday was impressive and it soon was making its way past the open to its highs of the day at our entry of 575.59.
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A number of upgrades added to the earnings reaction and before too long we had a gain over 5%. As we often do at the level, or earlier, we took our first third of profit. We nearly hit a 10% gain from our entry but held the remaining shares. The big shift in the relative strength line (4) was a compelling reason to give Dexcom stock room to run.
Extended Market Prompts Selling
On Nov. 3, DXCM stock was nearly 13% from our entry at the open but quickly fell lower (5). By the end of the day, it was an outside day closing at the lows. That's usually a harbinger of short-term weakness to come. But we kept our remaining position as we still had a nice cushion and were above the 5-day moving average line.
The next day, we did trim some shares as we fell below the 5-day line and our 10% profit level (6). But DXCM stock closed well off its lows and above the 5-day line, so we kept our remaining third position.
You might wonder why we didn't shed the remaining third when we closed below both the 5- and 10-day lines a week later (7). Especially since the market started to look extended at that time. This is where it's important to remember that trading in a stock doesn't happen in a vacuum. The overall market struggled during that drop, and we were doing a lot of selling. Dexcom stock was holding up well compared to a lot of our other holdings, we had a bigger cushion on it even though it was a recent entry. That made Dexcom lower on the list of stocks to sell.
When we did eventually issue a sell alert a week later (8), the market looked extended again. As a swing trade, Dexcom stock was no longer the new entry. It was on for a while with the concern that we already grabbed the heart of the watermelon. So we decided to lock in the remainder of our gains. By doing so, we avoided a move down that nearly wiped out all the gains from our entry (9). Another reason why selling into strength remains one of the best strategies in the current market.
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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