Growth stocks took some hard hits this past week. The major market indexes didn't really show the damage to many high-valuation stocks. In the case of Axon stock, it was an example of a pretty perfect setup that just didn't work — unless you took profits quickly.

Early Entry For Axon Stock

The latest rally offered a number of early entries for stocks and Axon Enterprise (AXON) was a great example. It broke above its 50-day moving average line with power (1). Keep in mind, this was just a day after many AI-related stocks got hit as investors were introduced to DeepSeek's entrance into the field.

Axon initially joined SwingTrader (2) after it popped above 670 following three days of getting turned away at that level. The biggest problem was that it was a little on the extended side so we quickly exited when it didn't follow up the next day (3). Our assessment was that after the big move from its lows of the base, it probably needed to add a handle.

Upside Reversal Offers Another Chance

There was a lot to like about the next setup. Axon came down for four consecutive days but often closed in the upper part of its range. That shows a resilience and fight against going down. Our reentry was on the upside reversal (4). Axon saw a wide spread that started with a shakeout, saw support at its 21-day line and then a powerful move with a close near its peak.

They don't get much better looking than that. However, no matter how good a setup looks, it doesn't guarantee success. Even pocket aces don't guarantee a win in poker. That's why we stuck with our normal rule of taking profits on a quarter position into strength (5).

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With a portion locked in, it gives you a little more chance of leaving the entire trade with a profit. Even if you come back to your entry.

Quick Exit Saved The Trade

The next day, high-valuation growth names started to see some cracks and Axon was close to patient zero. A downgrade by Northcoast Research analyst Keith Hosum started the move down. As the selling accelerated we exited the position at around 673, just 30 minutes into the trading session before we really had all the news (6). We knew what was happening with the chart before fully understanding why it was happening. That's not unusual in swing trading where technical analysis gets a heavier weight in decisions.

The quick exit decision and early trim on strength allowed us to leave the trade with a gain of roughly 1.5%. More importantly, we avoided an even sharper downturn. By the end of the day, Axon fell an additional 10% from our exit (7). It continued to fall through the remainder of the week.

Rather than planting a flag on how good the setup was or how overdone the move might have been, we looked at the evidence of the chart. There's a reason for the phrase "a picture is worth a thousand words."

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

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