Cambrex Corp ($CBM) breaking out to new multi-year high (short-term buy setup)
Aug 14, 2012
On August 2, small-cap stock Cambrex Corp ($CBM) reported quarterly earnings that blew away analyst estimates by 50% (33 cents EPS vs. 22 cents EPS). That day, traders piled into the stock, driving its price 22% higher on volume spike that was nearly 500% greater than average (highlighted by the pink ellipse on the chart below). In the week that followed, $CBM pulled back slightly, forming a bull flag chart pattern in the process.
Spotting this bullish swing trading setup while doing a Pullback Scan on the new MTG Stock Screener, we added $CBM to the stock watchlist section of our swing trading newsletter on the morning of August 9. That morning, $CBM triggered our buy entry (blue ellipse on the chart above) when it rallied above the previous day’s high, which correlated to a move above the upper channel resistance of the newly-formed bull flag (dotted black line). At its intraday high that day, $CBM had already zoomed 3.9% above our entry price of $11.12. However, as indicated by the long wick of that day’s candlestick, the intraday rally attempt failed and $CBM closed within a few pennies of our entry price. Although that day’s bearish price action was a bit concerning, it is not uncommon for the first breakout attempt to fail and for the price to come back down to test support of the prior breakout. Besides, we already had our protective stop in place. We were not concerned about the outcome either way because we use a “set it and forget it” mentality with regard to setting stops.
Yesterday (August 13), $CBM closed just shy of its August 9 intraday high and at a fresh multi-year closing high. Volume also came in above its 50-day average level. Now, if $CBM moves above yesterday’s high of $11.57 within the next day or two, there will be a complete lack of overhead resistance and supply, which could lead to a sharp, momentum driven surge higher in the near-term. As with most of our individual stock swing trades, we will be looking for a gain of 15% to 20% above our entry point, at which point we would be looking to take profits and sell into strength. With yesterday’s rally, the trade is currently showing an unrealized gain of just under 3% from our entry point.
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