Spotify, a pioneer in its industry, presented an early buying opportunity preceding the Nov. 1 follow-through day. Subsequently, it provided another chance for investors as it consolidated its gains, showcasing characteristics often observed in market leaders.
Observing the convergence of moving average lines across various time frames served as a signal for a swing trading entry on Spotify stock. The stock’s ability to hold short-term moving average lines indicated potential for longer-term growth.
Analyzing Spotify’s Performance:
A notable surge following Q3 earnings propelled Spotify by 10% despite market indexes trending downwards. Within seven weeks, the stock soared by 40%, exemplifying its resilience and attractiveness to investors.
Even for investors who initially missed the opportunity, Spotify’s subsequent formation of a flat base presented a renewed chance for entry.
Utilizing Moving Average Convergence:
Unlike some examples, such as Microsoft, Spotify didn’t intersect with its 50-day moving average line. However, the convergence of the 5-, 10-, and 21-day moving average lines indicated a period of tight consolidation.
Subsequently, when Spotify stock demonstrated a significant bounce, breaking a mild downtrend with a 2.5% gain on higher-than-average volume, it signaled a favorable entry point.
Implementing Profit-Taking Strategies:
Adhering to taking profits in thirds, the initial third of the position was sold following a 2.5% gain shortly after entry.
However, due to the robustness of the rally and strength in individual stocks, subsequent profit-taking was adjusted accordingly. Despite minor tests along the way, Spotify’s performance warranted holding onto the remaining position.
Navigating Earnings Season:
Earnings season poses challenges for swing trading positions, as demonstrated by the volatility surrounding companies like Dropbox.
Managing risk during this period is crucial, as evidenced by the decision to exit two-thirds of Spotify position before its earnings report.
While this decision may have resulted in missing out on potential gains, it mitigated the risk of adverse reactions.