Trade Opportunity Case Study of the Week: ALAB Range Breakout | December 3rd 2024

The Trade Opportunity

The purpose of this weekly article is to analyze the top trading opportunity of the week. To improve our identification and execution of high quality trade ideas that meet our setup requirements.

Each article will focus on a stock that meets one of three of the main categories of setups I trade:

• Range Breakout / VCP / tight area breakout
• Pullback to Support/ MA
• Gapper / Post Gap Setup

These articles are like taking a step into the batting cage and loading up a historical at bat from a Ace pitcher in the world series – they will help you prepare and execute in future situations by studying important moments from the past.

The setups we cover will appear again and again in each market cycle

So far we have covered examples of trade setups & entry tactics after a recent gap:
Be sure to review my previous article covering the BE Day 1 Gapper Setup
Be sure to review my previous article covering the AI Day 3 Gapper Setup
Be sure to review my previous article covering the DOCS Post Gap Range Breakout Setup

This week we will be covering an pullback setup for a stock already in a trend – using ALAB’s recent 14% move in 4 days as an example.

However this week there were multiple other stocks worth studying that I wanted to include a chart of:

ASAN Gapper Setup – Day 1 entry tactic (Mini base breakout)

DOCU Gapper Setup – Day 1 entry tactic (Mini base breakout)

RBRK Pullback Setup – Oops reversal off the 10ema

RBLX pullback setup – 21ema Range Breakout

COIN Range breakout setup – Oops reversal entry tactic

RDDT pullback setup, 10ema range breakout

TSLA VCP setup, range breakout

DDOG pullback setup, range breakout

GEO Pullback setup – Oops reversal/outside day after low volume 10ema pullback

ALAB However I believe was the best opportunity, it was highlighted in the Trade Lab and was a great chance to enter a market leader that still looks to have runway

On a weekly going into the setup it had held above the key IPO consolidation pivot and had formed a tight close compared to the week prior

On a daily it had formed a tight range with 2 inside days after it held above the pivot. This setup was featured in the Dec 2 report. RMV tight signal.

Discovery

Before you can trade a stock you need to know it exists.

To get this one on your radar you would have to build it into your routines to setup a watchlist to track current market leaders or in this case recent gaps

I track this watchlist and always review it for potential setups, I include the list at the bottom of my daily reports for you guys. Below was from the Dec 2 report, the day before it broke out of the range.

ALAB was a recent gap and had the Semis and AI leading theme going for it. It was the Semi showing the most RS

You could have also found ALAB by running a screen looking for RMV tight signals in Deepvue

Setup and Execution

The Setup for ALAB was a range breakout against the 10ema.

For a pullback setup range breakout I look for

1. Supportive action at the 10ema or 21ema area
2. Confluence with another significant level like in this case the IPO key high
3. Ideally lower volume on the pullback

After I identify the setup I would look to use one of the 4 ways to trade ranges to enter. These entry tactics allow you to execute while minimizing risk.

• Option 1: Accumulate Versus Lows
• Option 2: Buy Tightness
• Option 3: Range Undercut and Rally
• Option 4: Range Breakout

In this case you had a slight gap up to just below the range pivot. notice the very low volume during the two tight days in the range.

With this setup you could have anticipated the breakout from the range and used option 1 or 2, or waited for the breakout day and used option 4

Daily Chart:

On a 5 minute you can See ALAB pushed almost immediately. I personally added as it pushed through the pivot using a stop of 104.87 (just below the LOD and below the 105 whole number and about 1% risk)

With 1% position risk you could size even a 50% position and still only risk 0.5% of your portfolio.

This is a later buy so I don’t think you would want to size that big here, this is more an add spot (5% to 15% depending on core sizing) where you could have put some back on you took off into strength. Or a swing trade for someone not already in.

Here I’ve marked some strong earlier entry points where a core position (15%) could have been put on.

At the recent highlight spot, 15% add with 1% risk would only be about .0015% portfolio risk.

Trade Management

From this week’s entry, ALAB pushed strongly the breakout day closing near highs, then it flagged sideways constructively before reconfirming friday. It is acting well.

It is up about 13% from the range breakout, many multiples of initial risk, a point where stops should certainly be at breakeven or higher and faster traders would likely have been selling some into strength on the BO day or friday on the reconfirmation

For position traders playing for the larger move, ALAB is just starting a potential institutional advance phase from its first major consolidation. It is part of a leading theme, is growing rapidly, and has had two strong gaps on volume suggesting rapid accumulation. It fits the template of what we look for in a market leader.

With this in mind patience is warranted, Although stops on the recent add may be at breakeven, if you have a significant cushion on this say 50% plus it may be prudent to let it work until a negative close or 2 below the 50sma.

This may mean sitting through a base and a lot of chop, but could pay off with a stock making a 100% or more move from this point. Sitting in a market leader breaking out to all time highs during a strong market is what can really move the needle in your account.

If the market goes into correction in coming weeks, swing traders would likely want to sell the last into weakness on a bad close/ intraday action below the 10ema. Position traders would want to see it respect the 21ema, the key IPO high pivot, and the 50 day and base constructively, waiting for the next market uptrend.

A new base just above the IPO pivot would setup another solid add spot.