Trade Opportunity Case Study of the Week: CRNC Episodic Pivot – | Jan 5, 2025

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
Previous Article on QMCO Range Breakouts

This week we had the start of a potential market turnaround, with many names breaking up through range pivots. Here are a few names also worth looking back on this week

RIVN range breakout from the 21ema after beating deliveries expectations

OKLO VCP breakout friday from inside day near the 21ema

VST breakout and wedgepop thursd

RDDT upside reversal thursday and follow through friday

RKLB upside reversal thursday and follow through friday

The best opportunity however this week was for a swing trade in CRNC on the episodic pivot. CRNC was up 127% on the week and 143% on friday.

From the open Friday it was up 80% which was the real opportunity.

This trade would be reserved for faster traders

Daily Chart:

Discovery

To get CRNC on your radar you want to track recent powerful gaps and stocks that showed the highest volume ever edge. Especially ones in a leading theme: here AI.

From their website:

Cerence (NASDAQ: CRNC) is the global industry leader in creating unique, moving experiences for the mobility world. As an innovation partner to the world’s leading automakers and mobility OEMs, it is helping advance the future of connected mobility through intuitive, AI-powered interaction between humans and their vehicles, connecting consumers’ digital lives to their daily journeys no matter where they are. Cerence’s track record is built on more than 20 years of knowledge and 500 million cars shipped with Cerence technology. Whether it’s connected cars, autonomous driving, e-vehicles, or two-wheelers, Cerence is mapping the road ahead. For more information, visit www.cerence.com.

On Nov 21, CRNC reported earnings and significantly beat expectations for EPS and Rev.

Headlines from the report:

• Record high of 22 platform launches in FY24, including 6 for generative AI solutions and 4 in Q4

• Q4 Revenue exceeds high end of guidance; positive cash flow from operations of $6.1 million

• Transformation plan on track to deliver net annualized cost savings of $35-$40 million

• Initial FY25 revenue guidance of $236 to $247 million

The price and volume action was powerful, representing a shift in how the market perceived the stock and it’s prospects. After the HVE CRNC set up a constructive base and setup for a breakout. This setup was tracked in the Trade Lab the day before the Episodic pivot.

You could also have found it by scanning for tight RMV stocks and/or stock near their 21emas in Deepvue

If CRNC was not already on your radar, you could have discovered it through pre market gap up screens friday morning and investigated the news catalyst.

In Deepvue you can use the pre market movers screen preset. CRNC was top of the list in terms of % move and volume was trading 290% above average.

Seeing this you would want to look into the reason for the gap. Here is the press release from their website. It was also reported by news outlets although many after the open already.

An NVDA partnership expansion certainly qualifies as a “game changing catalyst” and CRNC was a potential day 1 episodic pivot

Setup and Execution

With CRNC gapping up on huge volume as a potential Episodic Pivot you would want to be ready AT the open to execute.

For gappers the key is to find a spot to manage your risk tightly and look to have a good cushion into the end of the day. They are often volatile and you need to size and manage risk to maybe give them a shot multiple times if you are stopped

For me usually this occurs

1. Right at the open, using the LOD as a stop – looking for immediate demand
2. Very close to the open on an opening range breakout, or mini base and rally
3. Within the first hour-two on an intraday constructive base

The first opportunities happen shortly after the open, I’ve annotated them below. Each would have allow for tight stops under 4%

With a 4% stop you can risk 0.5% of your portfolio and get a 12% position. Not huge but in a high flying name like this that can make an impact.

The best of the entries below in my view was Entry 4. You had an initial move up, pullback and then a tight range form (see RMV) with an inside day

With a 3.25% stop you could size 15% and be less than 0.5% portfolio risk. This is plenty in a stock like this

After this initial trading you would get off the 1 minute charts to the 5 or 15. If in from an initial entry you would be quickly up 2X your initial risk or more at which point you can move to breakeven or half your stop. With this type of mover, one you are in with a cushion, you are playing for a big move.

5 minute chart:

Note the respect for the AVWAP and strong trend above the 10ema. The outside bar off the avwap would have been another potential entry, however here the logical stop would be under the AVWAP/10ema confluence, so depending on the entry during that bar the risk would have been higher than ideal.

From here CRNC respected the 10ema beautifully before getting extended. Sellable into strength or on the break of the 10ema on the upside reversal woudl have yielded a 50% return from the early entries. A great trade.

CRNC set up again in an intraday base. it had an initial false start with the upside reversal but then setup even better with an undercut and rally range breakout near the 21ema.

It then rallied about 13% into the end of the day.

CRNC was closing with about an 80% intraday move, up 147%. At this point you have a decision to make, to hold all/some with great cushion or simply sell and potentially revisit.

It’s a personal call, AI and automobiles are clear themes, a partnership with NVDA is a great deal. This could potentially follow the blueprint of ASTS and be the start of a larger move.

However with that potential also comes the likely hood of gap downs, huge intraday volatility, a tests of grit.

You can always compromise by a 3rd or half into the end of the day making this a risk free trade and still having a decent size position that is already paid for.

Future thoughts

CRNC just put in a highest volume ever episodic pivot. It is very likely that this move is not over.

It is potentially actionable for day 2 entries (see prior case studies for this) or it could setup a tight range after an initial pullback.

However, we must remember the type of stock we are dealing with, this isn’t a market leader type name that will trend effortlessly, it’s a performance enhancer. They are restricted for fast and experienced traders who can watch stocks more closely during the day