Can Etsy Stock Come Back To Lead Again?

Headlines have been extra volatile and that’s added challenges to swing trading. There hasn’t been much trending beyond short-term pops and drops. So when Etsy stock dropped sharply the day after an entry point, we didn’t waste time cutting it, out of caution. It may still be a stock that goes on to lead again, but for the short-term we opted for a stance of better safe than sorry.

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Can Etsy Stock Return To Glory?

Etsy (ETSY) was one of the retail darlings of 2020 as the world struggled to grapple with Covid. And like many of the stocks that rose during the worst of Covid times, Etsy stock saw a dramatic decline. Nearly 80% off its peak in Nov. 2021 to its low in June 2022.

Is it possible for Etsy stock to make a comeback? First, some interesting notes on recent divergences that developed as the market indexes hit lows in October. Etsy stock, by contrast made its lows in June (not shown on chart) and was well off its bottom as the indexes made their lows (1).

But when the market indexes pulled back, they held above their Oct. 13 lows. Etsy stock by contrast, did undercut its October lows (2).

It was a mixed message to start. But when Etsy stock surged above both its 50- and 200-day moving average lines (3), it started getting on more of our screens of strength. It gained more than 60% in just a month’s time (4) and that was more than 100% from its June lows. That’s not a move that should be ignored.

Stalking A Stock

A strong move like that should get your attention but doesn’t necessarily require immediate buying. Rather, it’s important to wait and see how a stock handles itself as it consolidates gains. Whether a base or just a pullback to moving averages, the price action will give you information on the underlying supply and demand of investors.

For Etsy stock, support at the 21-day line was encouraging (5). But headlines, like the CPI report, were often guilty of causing wide swings after an initial reaction and counter reaction (6).

Still, it’s worth noting when a stock is able to show relative strength compared to its peers and the stock market as a whole. In that regard, Etsy stock holding its 21-day line (7) and previous support at the line (5) was a sharp contrast to market indexes breaking those support levels.

Willingness To Walk Away

The extra analysis and stalking requires patience as you wait for an opportunity to buy. But you still need to be willing to walk away if the stock breaks your expectations. Etsy stock popped higher after its 21-day line bounce along with many retail stocks earlier this week (8). We added it to SwingTrader on the move and saw a nice gain from our entry into the close for the day. We set a stop at the 21-day line. Even that was a larger risk than desired so we went with a smaller position size.

But instead of holding gains or following up on them, indexes lost their gains the next day and Etsy stock fell even harder (9). While waiting for a close is ideal, you still have to have a line in the sand. Watching the intraday action on Etsy stock, it kept trying to make a stand but would lose its support levels just a short time later.

We gave it some room early in the session but after numerous rally attempts and failures, we ultimately cut the position. While it’s still a stock worth watching, the break of expectations may mean we were too early this time. Cutting spares us from potential deepening losses or time-wasting sideways action. That keeps both our physical and mental capital intact to give Etsy stock another try should it just require another round of patience.

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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