Trade Opportunity Case Study of the Week: QMCO Range Breakout – Performance Enhancer | December 22nd 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:
Previous article covering the BE Day 1 Gapper Setup
Previous article covering the AI Day 3 Gapper Setup
Previous article covering the DOCS Post Gap Range Breakout Setup
Previous article covering the ALAB Range Breakout Setup
Previous article covering the NVCR Range Breakout Setup

This week there were a few stocks worth analyzing, but most of the best opportunities occurred friday with oops reversals and positive expectation breakers

INOD Positive expectation breaker Thursday and follow through friday

A positive expectation breaker is when we have a very negative day with a poor daily closing range less than 25% and then the next day we have a gap up and supportive action.

This is a potential shift in momentum and entry point

On a 5 min you can see that to catch INOD day one on te ex breaker you woudl have to have it be the focus right at the open, or wait for the opportunity day 2 after initial weakness and then follow through

LUNR 65 min and Daily potential 15% or more swing trade from a daily range breakout using undercut and rally range entry tactic

KVYO range breakout at 10ema from RMV tight signal, this one showed great RS. Up 10% from pivot

DOCS range breakout at 21ema from, great RS thursday

Other than that the best opps were in the RS leaders on friday on oops reversals

PLTR oops reversal.

An Oops reversal is when you have an open below the prior day low and then a push through that prior day’s low. Typically you manage risk against the oops reversal day’s low and the bests turn into positive outside days and start a swing move.

Best used in a strong stock in a pullback or range setup

The best opportunity however this week was for a swing trade in QMCO. It emerged from a tight range at the 10ema and exploded up 30% in one day and 146% in a week.

This trade woudl be reserved for faster traders

There are two main types of stocks I like to trade: Liquid Market leaders and Performance enhancers.

Liquid market leaders are for building core positions of 25% or more and position trading longer trends.
Performance enhancers are for short swing trades of max 20% of the account (but in reality most 10-15%)

Performance enhancers are more volatile names but often have great momentum setups. They should be part of a current leading theme, in QMCO’s case quantum computing.

These work best in strong markets

Discovery

To get QMCO on your radar you want to track high relative strength names and then look for low RMV areas.

SOUN is another example of what I would call a performance enhancer in the AI theme

These types of stocks in strong markets love to breakout when RMV 5 goes below 5 and they build a range against 10emas

RKLB another recent example in the rockets theme

I usually have the best ones on my radar by watching the Deepvue leaders list and sorting by 1 month Absolute strength rating.

Setup and Execution

The Setup for QMCO was a 10ema range breakout. Here is what it looked like the day before

Here it is on a 65 min chart. For higher volatility names, the 65 min can be great for sharper entries and trade management.

The 65min 21ema often holds the powerful swing trades

The Entry Point

QMCO initially gapped up and faded, potentially leading to a inital stopped trade, however after the initial pull in it firmed up and u turned, rebreaking out through the daily pivot. A buy back through the pivot with a. stop low of the day would have been about 5.5% position risk

The ideal entry was jsut under than, from a 5 min inside day. A stop at low of the day on this would have been about 3% position risk.

Performance enhancers are inherrently more volatile so you need to manage risk thorugh smaller position sizing.

The daily pivot with 5.5% position risk on a 15% equity size is .008% portfolio risk
The earlier entry with 3% position risk on 15% equity size is .0045% portfolio risk.

For performance enhancers I want to see them work right away to more aggressively move my stop higher, QMCO did so giving immediate traction up 10% from entries shortly.

At this point I would move my stop up to breakeven and take off a 3rd, ensuring a nice green trade. Then seeing how the rest plays out that day

QMCO was closing with near a 30% move on the day.

At this point you have a decision,

Should you hold for a multi day move or simply take profits and cash in on a nice 1 day move.

It’s a personal call, in a strong trending market with a powerful setup like QMCO you may want to look to hold for longer.

The drawback is that you never know with these volatile names, they can gap down. or reverse an entre strong move the next day. It is also worth considering how in play the current theme is still. Quantum computing was stillnew with this being the first base of QMCO.

You can always compromise by selling half of the remainder and trailing the last 3rd of the initial.

The next day you get a gap up. Now about 50% move from the entry area

This is a bit of a gift and you may if you are aggressive want to sell immediately into strength. Q
MCO acts wild and after initially looking to rally further it rolls over fast.

After the move lower it consolidated the rest of the day and goes tight again, setting up for a potential add or re-entry the next day.

We get initial weakness the next day which is my preference over a gap up since you can often pick a turn and manage risk versus the low of the day. This would be about 5% risk.

You could add back what you sold into strength here.

Here is the 5 min chart. There was also an opening range breakout spot where risk can be managed under 3% risk

This was the big winner day where QMCO rallied over 150%.

Professional traders would want to be trim and trailing, and likely selling all of it end of the day

The next day we get a gap down and likely any remaining would be sold near the open

QMCO then pulled back to the 21ema on the 65 min, rallied and is now going tight again. On a daily however it’s not nearly as primed for a nice move as before and it more volatile.

With these very fast movers you need to be very patient and pick the very best spots where they can hurt you the least and you expect immediate traction