IO DAY TRADE SETUP – BULL FLAG FOR -1 : 1 LOSS

ION Geophysical Corporation (IO) announced yesterday its Q1 earnings at $0.33 per share. This beat a Zacks estimate that the company would lose $0.93 per share. Its stock price rose sharply at the opening minute, then formed a bull flag. It broke briefly out of consolidation, but unfortunately the breakout was not sustained and resulted in a loss for me. See my analysis below.

IO - Losing Day Trade Setup - Bull Flag - 05-07-2020

ACCOUNT OF EVENTS

The markets opened with an upward bias, with the Dow at +1.09 percent when I checked at 6:30 AM PT.

CNBC’s main headline read “Dow jumps 300 points as investors bet on an economic rebound from the depths of the pandemic.” There was nothing fundamental in this headline that I felt could give me an edge. But I did see that oil was up 10 percent on a delayed quote, so I took note of that.

The list of the morning’s top gainers on Finviz showed stocks from several different industries, but IO, #1 spot holder, got my attention the most. It was up over 125 percent and traded over 4 million shares, great volume. Seeing previously that oil was up so high, I checked the news on it and saw the earnings beat. I was fairly confident that IO  would be a good play. The pre-market chart looked great as well, as the stock was above the VWAP and testing $3.50.

TTPH held the #2 spot also looked interesting to me, as biotechnology stocks always do. It was up 46 percent and traded over 800,000 shares, good volume. But it looked thinly traded on the chart and it was below the VWAP. It also was up on news that La Jolla Pharmaceutical (LJPC) made an offer to buy the company. In my experience, news of acquisitions tends not to be a great catalyst. So, I skipped it. But I will touch more on this later, as TTPH would have been the better choice.

IO - Losing Day Trade Setup - Finviz 6:30 AM PT - 05-07-2020

Out the gates, IO made a sharp rise and strong close, hitting a high of $4.10 and closing at $3.91. If I had entered a buy stop market order at $3.51 before the market opened, I would have walked away with a profit. But I’ve been burned a few times when trying to trade out the gates, so I need more data and experience before making these plays.

At 6:34 AM PT IO reached $4.29 before pulling back. Seeing that there was support around $3.80, I decided to put in a buy stop market order at $4.31, with an intended stop loss at $3.79.

IO consolidated and indeed held the $3.80 support. At 6:42 AM PT it broke out of consolidation, hitting a high of $4.36. Unfortunately, it did not push any higher and it hit my intended stop loss at 6:47 AM PT.

To make matters worse, I forgot to put my stop loss in. In a last ditch effort, I placed an OCO (Order Cancels Order) order with a stop loss at $3.49 and target at $3.79, so I can at least maintain just a loss ratio of 1 to 1. But the price quickly hit $3.49 at 6:50 AM PT.

This was a huge disappointment, as “all the boxes” were checked to make this a great looking setup. I have a feeling that I’ve seen IO disappoint in the past, but I don’t have any trade confirmations for it nor do I have data. Nonetheless, I will certainly log this in my data tracker and take note that IO may be one of those stocks that I need to avoid, at least for any setup that is not an opening breakout.

However, I will also log the winning setup that I missed at the opening minute. Perhaps when I gain more confidence, as well as a speedier broker I will trade this type of setup.

Unfortunately I misjudged the news on Tetraphase Pharmaceuticals Inc (TTPH), and should have noticed some slight differences from the acquisition news that I am use to seeing. First, it was merely an offer to acquire the company, not a finalized deal. Second, there was no price per share disclosed. Usually, acquisition news would include this piece of information and the stock usually already trades at this price in the pre-market. Third, apparently Tetraphase was already in talks with AcelRX (ACRX) to be acquired, so La Jolla essentially created a bidding a war, which turned out be be a powerful catalyst.

NOTABLE DATA POINTS

Date: 05-07-2020

Day of week: Thursday

Approximate market performance at open: Dow 1.09%, S&P 500 1.28%, Nasdaq 0.00%

Company name: ION Geophysical Corporation

Symbol: IO

Industry: Oil & Gas Equipment & Services

Recent news date: 05-06-2020

Recent news headline: Ion Geophysical (IO) Tops Q1 Earnings and Revenue Estimates

Approximate performance before buy signal: +145.21%

Approximate volume before buy signal: 11,436,589

Float: 10.77 million shares

Setup: Bull Flag

Buy signal time: 6:38 AM PT

Entry time: 6:42 AM PT

Stop loss time: 6:50 AM PT

Entry wait time: 2 minutes

Stop loss wait time: 8 minutes

Order type: buy stop market

Entry price: $4.31

Stop loss price: $3.79

Maximum exit price: $4.35

Loss ratio: -1 to 1

Did I trade this setup? Yes