SNDX DAY TRADE SETUP – STOP AND GO FOR 3.02 : 1 MAX GAIN RATIO
Syndax Pharmaceuticals, Inc (SNDX) announced yesterday that it saw positive clinical results for SNDX-5613, a drug that it has been developing to treat patients with genetically-defined acute leukemias. Within the first ten minutes of trading today, the company’s stock made a Stop and Go pattern, then a move up that was sustained through the first hour. Using my stop loss rules, the setup provided me with a maximum gain-loss ratio of 3.02 to 1. For traders who use looser stop losses, there was an opportunity for a reward of over 9x the risk. See my analysis below.
ACCOUNT OF EVENTS
The setup occurred on Tuesday, April 28, 2020.
I started my day checking the markets at 6:30 AM PT. There was upward bias, as all three major indices were positive, with the Dow Jones at +1.55 percent.
I checked CNBC for any news that could assist me with determining how to trade. There didn’t seem to be anything distinctively fundamental, just a headline that merely stated the obvious – “Stocks are set to add to Monday’s gains with Dow futures up more than 400 points.”
Next, I checked Finviz to try and pick out a stock to trade from the list of top gainers. SNDX was number 4 on the list. It was up 21.81%, but it only traded 69,149 shares, so I quickly skip it and look at other stocks that were trading more heavily. There were a handful of them with positive news to serve as potential catalysts, but they were already trading far below the VWAP.
By 6:35 AM PT I had circled back to SNDX and saw that it traded over 168,000 shares, and it moved up to the number 3 spot. I checked its chart and saw that it kept closing higher with each minute to that point. I checked the news on it and saw a headline that read “The Daily Biotech Pulse: Pfizer Earnings, Roche’s Spinal Muscular Dystrophy Treatment, Moderna COVID-19 Vaccine Update.” Since the headline didn’t mention SNDX specifically, I decided to do a quick read of the article, which indeed mentioned that the company announced positive clinical trial results of its drug, and that the the FDA had granted it the Orphan Drug Designation.
Convinced that this was the stock to go with, I monitored it carefully and waited for my opportunity to enter.
The stock kept closing ever higher and I was afraid that this would be a run away breakout, but at 6:38 AM PT SNDX made a strong run up to $15.99, and closed at $15.78. During the next minute it touched $16.00 and started to pull back slightly. I monitored it for 30-40 seconds and anticipated that it would remain between $16.00 and $16.50, so I quickly put in a buy stop market order at $16.01 with an intended stop at $15.49 once the order got filled. I was shooting for a 2 to 1 gain-loss ratio so my intended target limit order was $17.05 [ (($16.01 – $15.49) x 2) + $16.01 ].
At 6:40 AM PT SNDX made a strong break above $16.00, reaching a high of $16.90 and closing at $16.77. I like to to move my stop loss to breakeven once a stock reaches a 1 to 1 gain-loss level, which in this case was $16.53 [ ($16.01 – $15.49) + $16.01 ], so as soon as I saw the price blowing past this level I put went to my open position and added my breakeven and limit order levels with an OCO (Order Cancels Order) condition. I barely had enough time to do this. In fact, I think I missed the profit taking window at 6:41 AM PT when the price reached $17.35, or maybe it was my broker being slow at processing my order.
At 6:42 AM PT SNDX moved lower, touching $16.23. I was a bit frustrated because my target limit order had not been filled, but relieved that if the stock moved even lower I would at least break even. But thankfully it moved higher and my limit order was filled at 6:43 AM PT.
If I would have held on longer in search of a higher gain, my break even stop loss would have been hit at 6:45 AM. For traders using looser trailing stops, there was an opportunity for a reward of 9x the risk. Since I’m trying my best to adhere to my own rules of day trading, I will log the conservative maximum exit price of $17.58 that occurred at 6:44 AM PT, for a maximum gain-loss ratio of 3.02 to 1.
NOTABLE DATA POINTS
Day of week: Tuesday
Approximate market performance at open: Dow +1.55%, S&P 500 +1.42%, Nasdaq +1.10%
Company name: Syndax Pharmaceuticals, Inc.
Recent news date: 04-28-2020
Approximate performance before buy signal: +29.52%
Approximate volume before buy signal: 168,902
Float: 27.35 million shares
Setup: Stop and Go
Buy signal time: 6:39 AM PT
Entry time: 6:40 AM PT
Maximum exit time: 6:44 AM PT
Entry wait time: 1 minutes
Exit wait time: 4 minutes
Order type: stop market buy
Entry price: $16.01
Stop loss price: $15.49
Maximum exit price: $17.58
Maximum gain-loss ratio: 3.02 to 1
Did I trade this setup? Yes