AXLA DAY TRADE SETUP – STOP AND GO, VWAP BOUNCE FOR 1.24 : 1 MAX REWARD RATIO

Axcella Health Inc (AXLA) announced positive results from a clinical study of two of its products, AXA1125 and AXA1957, for the treatment non-alcoholic fatty liver disease (NAFLD). Its stock price traded in a channel with high volatility, then made a sharp bounce off the VWAP during the first 45 minutes of trading. The setup provided a maximum reward-risk ratio of 1.24 to 1. See my analysis below.

AXLA - Winning Day Trade Setup - Stop and Go VWAP Bounce - 05-06-2020

ACCOUNT OF EVENTS

The markets opened with an upward bias, with the Dow at +0.64 percent when I checked at 6:30 AM PT.

CNBC’s main headline read “Stock futures rise as investors bet on the economy reopening.” I personally think that even if businesses start to re-open, it will be a while before consumers start to feel that it is safe enough to go out, spend and circulate money. So, I didn’t find anything fundamental about this.

The morning’s top gainers on Finviz was dominated by biotechnology and medical device stocks.

MDGS held the #1 spot. I recorded a winning setup for this stock in the past so I was immediately interested. Volume looked great on it and there was positive news regarding a patent. Unfortunately it was already trading far below the VWAP, so I skipped it.

ISEE held the #2 spot. Volume was could have been better but I’ve seen stocks trade well on lower volume. News was mixed on it. It had an earnings beat, but it also had to pause enrollment for a clinical trial due to the Covid-19 situation. It was also trading far below the VWAP, so I skipped it as well.

AXLA held the #3 spot, up over 31 percent and with over 100,000 shares traded. It had decent volume. I felt the positive news regarding the clinical study was a strong enough catalyst. It had a strong opening. I put this on my mental short list, but was still interested to see if other setups would develop.

In fact, I made a losing trade of SDC. For some reason, I thought I had traded it successfully in the past, but looking at my confirmations, it turned out I had not. I also normally don’t trade the first 5-10 minutes, but I guess impulse got the best of me. At any rate, I’ve logged that trade in my data tracker for future reference.

AXLA - Winning Day Trade Setup - Finviz 6:30 AM PT - 05-06-2020

I did a refresh of Finviz at 6:39 AM PT. Apparently I missed the fact that MGNX jumped to the #2 spot out of nowhere. That ended up making a much better move than AXLA. As you can tell, I’ve had better days.

It had fallen a bit in percent gain but still maintained the #3 spot and it had doubled in volume, so I was still interested.

AXLA - Winning Day Trade Setup - Finviz 6:39 AM PT - 05-06-2020

At 6:42 AM PT, AXLA popped back up above the VWAP after having dipped below it during the few previous minutes. It stopped just short of $6.40, with a high at $6.39 and a close at $6.35.

I anticipated a bounce off the VWAP, so I waited for the next minute candle to develop for confirmation. At 6:43 AM PT, the stock touched $6.40, trading very narrowly and closing at $6.35. I quickly put in a buy stop market order at $6.41. I saw that there was support at $6.00, well below the VWAP, so I had an intended stop loss at $5.99. I was going for a 2 to 1 reward-risk ratio, so I had an intended target limit order at $7.25 [ (($6.41 – $5.99) x 2) + $6.41 ].

My order got filled at 6:45 AM PT when AXLA made a quick pop to $6.62. But it lost momentum and pulled back to the VWAP soon after. It spent the next several minutes there and I thought I would get stopped out.

Fortunately at 7:11 AM PT it made a strong bounce off the VWAP, and at 7:14 AM PT it reached $6.94. Since the price had reached the 1 to 1 reward-risk ratio price of $6.83 [ ($6.41 – $5.99) + $6.41 ] I moved my stop to break even.

Sadly, AXLA made another downturn and hit my break even stop loss at 7:19 AM PT.

It was disappointing to not have reached my target, but I am glad that I determined my stop loss correctly and managed my trailing stop well. Since it could have yielded me a profit if I had went for a 1 to 1 reward-risk ratio, I will log this in my data tracker as a winning setup.

NOTABLE DATA POINTS

Date: 05-06-2020

Day of week: Wednesday

Approximate market performance at open: Dow 0.64%, S&P 500 0.62%, Nasdaq 0.00%

Company name: Axcella Health Inc.

Symbol: AXLA

Industry: Biotechnology

Recent news date: 05-06-2020

Recent news headline: Axcella Announces Positive Top-Line Data from AXA1125-003 Clinical Study Showing Multifactorial Activity in Adult Subjects with NAFLD

Approximate performance before buy signal: +26.34%

Approximate volume before buy signal: 218,601

Float: 16.93 million shares

Setup: Stop and Go, VWAP Bounce

Buy signal time: 6:43 AM PT

Entry time: 6:45 AM PT

Maximum exit time: 7:14 AM PT

Entry wait time: 2 minutes

Max exit wait time: 29 minutes

Order type: buy stop market

Entry price: $6.40

Stop loss price: $5.99

Maximum exit price: $6.93

Maximum reward-risk ratio: 1.24 to 1

Did I trade this setup? Yes

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.

CMRX - Winning Day Trade Setup - VWAP Bounce and High of Day Breakout - 04-29-2020

 

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

Date: 04-29-2020

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.

Symbol: CMRX

Sector: Biotechnology

Recent news date: 04-29-2020

Recent news headline: Chimerix Announces Initiation of a Phase 2/3 Study of DSTAT in Acute Lung Injury for Patients with Severe COVID-19

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