As of 04/18/2024
Indus: 37,775 +22.07 +0.1%
Trans: 14,947 -39.62 -0.3%
Utils: 860 +6.95 +0.8%
Nasdaq: 15,602 -81.87 -0.5%
S&P 500: 5,011 -11.09 -0.2%
|
YTD
+0.2%
-6.0%
-2.4%
+3.9%
+5.1%
|
 39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 |
As of 04/18/2024
Indus: 37,775 +22.07 +0.1%
Trans: 14,947 -39.62 -0.3%
Utils: 860 +6.95 +0.8%
Nasdaq: 15,602 -81.87 -0.5%
S&P 500: 5,011 -11.09 -0.2%
|
YTD
+0.2%
-6.0%
-2.4%
+3.9%
+5.1%
| |
|
39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 | ||
For more information on this pattern, read
Encyclopedia of Chart Patterns Second Edition
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When the FDA approves a drug and it's announced to the public, price can breakout in any direction, but the probabilities say that price will trend down soon after. This event pattern isn't worth trading because it has such poor performance. Discovered by Thomas Bulkowski in the summer of 2003.
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
| Characteristic | Discussion |
| Announcement | News outlets report that the FDA has approved a drug. |
| Wide swing | Look for announcements in which price makes a large intraday price swing, preferably 2 or 3 times the average intraday range over the last month. |
| Yearly high | For best performance after an upward breakout, select announcements that occur within a third of the yearly high. |
| Upward breakout | A breakout occurs when price closes above the high posted on the announcement day. |
| Volume | Select patterns with heavy announcement day volume, above the 30-day average. |
Although I don't recommend trading this event pattern, there is an inverted J-shaped pattern (inverted and descending scallop) that shows promise. The following (except the measure rule which refers to all upward breakouts) pertains to that situation. A study of the pattern reveals that price declines an average of 29% in 86 days after an upward breakout.
| Trading Tactic | Explanation |  Inverted J-Shape
|
| Measure rule | Compute the height (intraday high minus the low) on the announcement day and multiply it by the above "percentage meeting price target." Add the result to the intraday high to get a price target. | |
| Inverted J-shape | For upward breakouts, look for a price pattern that is an inverted J-shape. Price moves up following a trend, rounds over, and heads back down. The figure to the right shows what this pattern looks like. | |
| Price rise | After the breakout, price rises between 3 and 6 weeks before beginning to slide. Ignore patterns outside that time limit. | |
| Trendline | Price follows a trend moving higher. A trendline drawn along the bottom of that price trend, when pierced by moving lower, is the sell or sell short signal. The ideal figure near the top of this page shows an example. |
The above figure shows an example of what happens sometimes when the FDA approves a drug. News reports indicated that the company and its partner received approval to sell Abilify in the U.S. Price gapped up on the news and a nice rise followed. However, within a few weeks, the stock was moving down again, bottoming in March.
-- Thomas Bulkowski
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