CMRX DAY TRADE SETUP – VWAP BOUNCE AND HIGH OF DAY BREAKOUT FOR 3.34 : 1 MAX GAIN RATIO
Chimerix, Inc. (CMRX) announced today that it is beginning phase 2 of 3 of its study of dociparstat sodium (DSTAT) to reduce excessive anti-inflammatory responses in patients with severe Covid-19 infection. The announcement came a day after it announced that the FDA approved the aforementioned study. Its stock price traded back and forth along the VWAP during much of the first hour before breaking its high of day. It surged even higher a little past the first hour. The setup yielded a maximum gain-loss ratio of 3.34 to 1. See my analysis below.
ACCOUNT OF EVENTS
The setup occurred on Wednesday, April 29, 2020.
I usually get up really early in the morning to do my routine before the markets open, but I forgot to set my alarm last night, and I woke up right when the markets opened.
So I jumped out of bed to grab my phone and start putting together my trading setup.
At 6:32 AM PT I checked how the markets were doing. There was strong upward bias as all three major indices were up more than one percent, with the Dow Jones Industrial Average at +1.52%.
Next, I headed over to CNBC to check for any major news that would aid me in my trading today. A headline read “Dow surges more than 400 points as positive Gilead news lifts hope for coronavirus treatment.” Gilead is a big, slow moving stock so I knew I wouldn’t be trading it. However, I had a feeling that the news would push up smaller stocks in the biotechnology. So, I made a mental note of that.
Then I headed over Finviz to check out the list of top gainers. Indeed, there was a biotechnology stock (CAPR) that was in the number 1 spot. It had positive news on it, so I looked at its chart. Unfortunately it was selling off below the VWAP a bit, so I passed on it. It would eventually make a powerful move up later in the morning. I missed that trade but I have logged the setup in my data tracker.
I moved on to the remaining top gainers, which turned out to be disappointments. Many of them had false breakouts. So I waited it out, refreshing my view on Finviz every 5 minutes.
At 6:44 AM PT I saw that CMRX had jumped up to the number 4 spot on the list. I checked its chart. It had made a strong close at $2.07, its high of day at that moment. It was up over 34% and traded over 3 million shares. I saw the positive news on it and started looking for my opportunity to enter a trade.
But then it started selling off, going back below the VWAP reaching as far down as $1.88. Since it was both below the VWAP and that critical whole dollar support ($2.00) that I like to see, I wrote the stock off and started looking at other stocks.
The charts on the other stocks did not look interesting either though, and I spent the next several minutes just waiting. I was about to think that it would be a lackluster morning, but at 7:09 AM PT I saw that CMRX at shot back up to the number 2 spot on Finviz, up over 34% again and had over 5.5 million shares traded.
I checked the chart and I saw that it had touched $2.07 again before dropping back down to the VWAP. Seeing that it touched this exact price twice, I had a feeling that if it could make a strong bounce off the VWAP it could break past this level, which could have opened up a window for a rally.
At 7:12 AM PT the stock did in fact make a strong bounce off the VWAP. I then closed higher with each minute testing $2.07 once again at 7:16 AM PT.
I quickly put in a buy stop market order at $2.11, with an intended stop loss at $1.99. CMRX then broke past $2.10 at 7:17 AM PT, and my order was filled.
I quickly went to my open position and added my stop loss price with an OCO (Order Cancels Order) condition. Since I was shooting for a 2 to 1 gain-loss ratio I added my target limit price of $2.35 [ (($2.11 – 1.99) x 2) + $2.11 ].
CMRX pulled back between 7:20 AM PT and 7:23 AM PT before pushing higher. It then exploded past $2.20 and $2.30 at 7:31 AM PT, during which time my target limit order was filled. I didn’t even have time to move my stop loss to break even. The stock continued to push higher during the next several minutes, eventually reaching a maximum exit price of $2.61.
While I am happy with the result of this trade, I think I entered it a little early. Normally I would wait for a pullback after a strong price movement, but I didn’t this time. I’ll chalk it up to simply not following the rules in the heat of the moment.
Looking back at the chart, I see a safer entry at $2.21. The buy signal would have been the switch from red candle to green candle at 7:21 AM PT during the pullback. The stop loss price would have been $2.09, a penny below the ten cent level at the bottom of the pullback. The target limit price for a 2 to 1 gain-loss ratio would have been $2.45 [ (($2.21 – $2.09) x 2) + $2.21 ], which would have been reached at 7:32 AM PT.
Since one of the goals of this blog is to cover clean and clearly defined setups, I have entered the data of the more conservative setup on this post, but recorded the data for both setups in my tracking log.
NOTABLE DATA POINTS
Day of week: Wednesday
Approximate market performance at open: Dow +1.52%, S&P 500 +1.85%, Nasdaq +2.13%
Company name: Syndax Pharmaceuticals, Inc.
Recent news date: 04-29-2020
Approximate performance before buy signal: +39.74%
Approximate volume before buy signal: 6,752,489
Float: 50.62 million shares
Setup: VWAP Bounce and High of Day Breakout
Buy signal time: 7:21 AM PT
Entry time: 7:30 AM PT
Maximum exit time: 7:46 AM PT
Entry wait time: 9 minutes
Exit wait time: 16 minutes
Order type: stop market buy
Entry price: $2.21
Stop loss price: $2.09
Maximum exit price: $2.61
Maximum gain-loss ratio: 3.34 to 1
Did I trade this setup? Yes, with early entry