Trade Opportunity Case Study of the Week: NVCR Range Breakout Post Gap | December 15th 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

This week we will be covering another range breakout after a gap – in NVCR, which was a setup from the report. NVCR gained around 17% after u turning post gap up on a news catalyst

This week the other setup worth mentioning was AVGO for a potential day 1 trade.

AVGO Daily – Gap up on the highest volume in over a year

AVGO 5 Min – we can see that trading from the intraday base would have had about 3% cushion EOD, not a huge amount but enough to stick with a starter position.

The best setup to study this week was instead NVCR in my view. It had pulled back after gapping up on a news catalyst on the highest volume in 1 year.

The setup on the weekend:

Notice the supportive upside reversal action and the lack of follow through down.

Discovery

To get NVCR on your radar you want to track recent gap ups in a watchlist and review them regularly for a post gap entry tactic

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 6 report, the weekend report before it broke out of the range.

You could have also found NVCR by running a screen looking for RMV tight signals in Deepvue. or sorting the DV leaders screen by low RMV

Setup and Execution

The Setup for NVCR was a range breakout for an Post Gap U Turn.

NVCR is a lower quality name due to it being a biotech and lower dollar volume. I would size these much smaller than I would for say TSLA or even ALAB and treat it more as a swing trade versus a position trade. There is always a big risk of a large gap down with these. You have to manage risk with position sizing, not just a stop.

In a strong market where other themes are working, it way be worth just staying away. There is potential sure but also added risk. They are not profitable but do have revenue. Looking in the past NVCR has the potential for big runs but also very large drawdowns. It is also far from all time highs.

What is promising was a gap up on the largest volume in over a year, suggesting that some time new is happening with the stock. The gap was due to a successful cancer study although the treatment is still awaiting FDA approval, I view this as a lower tier catalyst.

The entry tactic was a break through the reversal day high.

For a U turn setup I’m looking for:

1. A strong gap. HV1 or big volume from a base.
2. A Strong catalyst
3. In general a strong market and/or gap ups seeing follow through
4. An orderly pullback
5. Sign that the pullback may be ending (tight range, upside reversal)
6. Ideally confluence with the 10ema or 21ema

Here is the setup on a 65 minute timeframe

You would be watching for a push from the tight range as your buy point, with a stop set at the low of the breakout day

The next day we get a push higher, but it turned into a stop out as we pushed the pivot then reversed. The pivot was 2.7% from the higher low.

A 25% position would have netted a .027*.25 = 0.67% equity hit.

However the daily chart still shows that NVCR was still setup for a U turn. It was tightening further.

The following day we have an undercut and reclaim of the pivot, allowing you to manage risk at that day’s low with about a 2% stop.

It works right away and by the end of the day you have a 4% cushion, enough to hold and watch for continuation.

Here’s what it looked like on the daily

Trade Management

From this entry, NVCR follow through the next day and then put in an inside day before closing the week strong and breaking out through the gap up highs. Friday was also actionable in of itself with a positive expectation breaker and push from the inside day

One thing I note os that NVCR has a habit of pulling in at the open, these nuances happen with the stocks and learning their characters helps you distinguish between normal and abnormal action.

By the end of the week the position would be up about 16%. Certainly swing traders would have looked to lock in some partials.

Position traders would be taking a look at the weekly chart. It has room to run all though it will have to work through supply to have a sustained stage 2 uptrend