RIO Stock A Bright Spot In Ailing Market


It hasn’t been an easy February. Besides cyclical and commodity stocks, there were few bright spots. One of them was Rio Tinto (RIO). The miner is up more than 15% for the year while the S&P 500 got punished more than 10%. Here’s what attracted us to RIO stock for swing trading.


Relative Strength: A Defining Feature Of Winners

With the indexes and so many stocks down this year, how is one to find any stocks worth trading? One of the biggest clues is relative strength and specifically the relative strength line among chart setups.

Like most stocks, RIO stock was in a downtrend for most of 2021. After months of trading below its 50- and 200-day lines, on Dec. 14 it finally closed above its 50-day line (1).

Fast-forward about a month and a 15% rise and RIO stock closed above its 200-day line (2). It also showed consistent above-average volume during its move and a relative strength line at a steep angle of ascent.

Though it consolidated in the latter half of January, RIO stock still looked better than most stocks and the market indexes. It remained above its 50-day line and even its 21-day line for most of the short consolidation.

Swing Trading Example: RIO Stock

It was in this context of relative strength that we added RIO stock to SwingTrader (3). Even during its consolidation its relative strength line held up as the S&P 500 looked in much worse shape. Plus, volume was running higher as we added the stock.

We didn’t have to wait long to get market feedback on our decision. By the end of the day, we already had over a 3% profit and we locked in gains on a third of the position.

RIO stock continued higher from there and we locked in another third profit once we had over a 6% gain from our entry (4). At first, we saw the stock move higher with our smaller position size but it reversed by the end of the day.

A few days later, we booked the remaining gain after RIO stock gapped down below its 5-day moving average at the open (5).

A Few False Starts And Another Potential Setup

After our final exit, it was hard not to notice the nearly 2% gain the next day (6). It made it look like we got shaken out when the stock found support at its 10-day line.

But it didn’t last. RIO stock went under its 10-day line for a few days. After some back and forth, it had a strong move back above its short-term 10-day line and then reversed (7). It even undercut our original entry price a few days later (8). Our exit saved us from the unpleasant scenario of seeing all the gains quickly dissipate.

But that doesn’t mean we need to forget the stock completely. Even with the uncertainty surrounding events in Ukraine, RIO stock is proving itself with continued relative strength and a possible new entry (9).

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


Swing Trading Strategy Basics

Want To Know When An Uptrend Starts? Track Daily Stock Market Action With The Big Picture

Learn More Trading Lessons Through IBD Videos

MarketSmith: Research, Charts, Data And Coaching All In One Place

Source link