Breakout Patterns – Case Study

by | Apr 17, 2019

Stocks seem tired during this short trading week, despite us being in the heart of earnings season. Even earnings from Netflix, IBM, and Pepsi isn’t enough to get traders excited, as the VIX dips below 12.

I know for some traders, the lack of volatility is hurting them. It’s times like this when traders will force trades, get into stuff because they are bored, or just plain old settling for third and fourth-tier plays because their number one setups aren’t there.

How do you get around that?

Well, instead of trying to churn and burn your account. Work on adding to your toolshed. For example, I have strategies and setups that work better in this trading environment than others.

So what’s still working out there?

FDA Catalyst Plays Still Work

I’m finding that FDA catalyst plays are still generating alpha.

(I made over $3K on this FDA Insider Alert, they are typically 1-4 week holds, but sometimes shorter, if you’d learn about my trading style, click here to test out FDA Insider Alerts)

For example, I recently took profits off in a trade that I put on in  Sesen Bio (SESN), a biotech penny stock, which had a strong phase 3 cancer data readout coming…

However, when I’m looking at trade candidates, I typically need the chart to line up with the catalyst. And in this case, I liked the fact that it had a bottom reversal setup, a near term bull flag, and a gap above to fill… Now, I use Finviz to screen for stocks like these.

(I send my watchlist out on Sunday, if you’d like to receive my alerts in real-time along with my watchlist, click here to test out FDA Insider Alerts)

Now, if that jargon sounds confusing, don’t sweat it. I’m going to go over it in detail for you. Most importantly, I am going to lay out the mechanics for this trade, because I think we’ll have a chance to get back in this one…read on to learn more.

Sesen Bio (SESN) Breakout Patterns Case Study

So why did I like Sesen Bio (SESN) at those levels?

First, there was an upcoming Phase 3 cancer data release (the catalyst event). Keep in mind, the data is supposed to be presented at the American Society of Clinical Oncology (ASCO) conference in late May.

Now, we were a bit early on this play, but with the way the biotech stocks work… sometimes, you need to get in early to take part in the catalyst runup.

You’re probably wondering, “Well Kyle, why did you get in so early?”

Well, it’s pretty simple actually. I saw three different chart patterns indicating there could be bullish trading very soon.

That said, let’s take a look at the chart patterns I was looking at when I bought shares of SESN.

Double Bottom Reversal

If you look at the daily chart below, SESN was beaten down, but it formed a double bottom just below 70 cents back in February. Thereafter, the stock has been trending higher. Here’s a look at what I’m talking about.

Now, if you look at the chart below, you’ll notice the green horizontal line.

Notice how when the stock gets to the green horizontal line, it has a hard time breaking below that level. What that tells me is that buyers are willing to buy the stock around there… and it would be a good area to stop out if SESN broke below the green horizontal line.

Potential Gap Fill in SESN

If you look closely at the two charts above… there’s a gap in price… between $1.10 and the $1.40s. With the stock trending higher, the gap above, and the upcoming catalyst… this told me there was a high probability that SESN could break out. Here’s what I’m talking about.

breakout chart patterns catalyst runup

Check out the daily chart in SESN below.

breakout chart patterns

If the stock gets into the gap – breaks above the blue horizontal line at $1.10… well, SESN could pull a gap fill. Now, generally, when a stock breaks above a resistance area, and has a gap above… it almost acts like a vacuum. In other words, once it gets into the gap, chances are the stock would fill the entire gap.

Bull Flag Pattern on Shorter-Term Timeframe

Now, if we look more closely at the hourly chart… there was another bullish pattern forming – the bull flag.

chart patterns

With the bull flag pattern, we’re looking for a rise in the stock, followed by consolidation. If you look at the chart above. SESN had a nice pop… consolidated between the two blue horizontal lines. Generally, when we see this pattern, the stock runs higher.

The Play in SESN

So with 4 signs pointing to the stock continuing higher… I bought shares at 99 cents… now, I was planning on buying more, but I didn’t get the right price.

Here’s what I sent out to clients on Friday.

breakout chart patterns biotech breakouts

In just four days, I was locking in $1,500 in profits. Now, keep in mind, I only sold half of my position. You see, when you’re trading… it’s typically a good idea to take some profits off the table, but still keep a portion of your position still on to let the trade play out. Here’s what I sent out to clients – letting them know I was selling some of my shares.

biotech breakouts breakout patterns

I sold all my shares that same day, after the stock ran nearly 40%!

Here’s a look at the chart again – at the end of yesterday’s close.

Since the move happened so fast, there might be a chance for us to re-enter. Furthermore, if you’d like to know more about how I conduct scans like this, check out this video I made on Facebook yesterday, and don’t forget to hit the like button and follow.


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