Maybe someone in your family, or in a family quite close to you, was born with a rare disease or develops one at a quite early age.
It’s undoubtedly heartbreaking as you, or those people you know, persist year after year, doing research and calling all the very best hospitals in the country to identify a solution that seems nowhere to be found.
Take Eli, born in March of 2009.
During his infancy, he was a very social little guy. He loved to play with his mom, dad, brother, and sister. He would sing at the top of his lungs and dance like crazy.
And while he still does all those things, he can no longer walk and has a host of other cognitive development issues that arose because of a rare disease called ‘gangliosidosis’ that developed by the age of 9.
No cure has yet to be found, but one company that I have my eyes on this week is a frontrunner in the search of genetic treatments for monogenic central nervous system conditions like gangliosidosis.
The company is called Passage Bio (PASG) and it hopes to raise $126 million in an IPO that goes live on February 28th.
So without further ado, let’s take a look at some of the company’s financials, followed by a brief discussion about the sector and underwriter.
One of the great things about Passage Bio (PASG) is that it has such strong partnerships.
The company is currently in research collaboration with the University of Pennsylvania’s Gene Therapy Program.
So far, PASG has three lead product candidates, which are gangliosidosis treatment PBGM01, frontotemporal dementia treatment PBFT02, and Krabbe disease treatment PBKR03.
The company plans to invest the IPO proceeds of $39M, $42M, and $34M into each of those 3 products respectively as part of the overall $126M it’s seeking.
These products all seem quite promising and exciting, though the numbers are what I’m going to be paying the most attention to.
The anticipated pricing range for PASG leading into the IPO is $16-$18, which is a bit high considering the price that similar biotechs IPO at.
Not only that, the company has not yet entered phase 1 trials… that period the safety and potential toxicity of a drug gets tested and evaluated with a very small number of participants (usually 20 to 80 people).
Some might say that in terms of short term prospects, a gigantic liftoff in this company’s stock could be a little ways away until we get some more confirmation about the drug safety and efficacy.
Nevertheless, the market for the treatment of the kinds of disorders that PASG hopes to resolve is quite large and expected to grow to $129 billion by 2025.
There could be a whole lot of excitement around this IPO, so there’s a strong possibility I’ll at least keep it in my yellow light category as we move into the week.
For the most part, I’ll keep an eye on how the underwriters will price the IPO. Why?
Well, we know how many shares are being offered, as well as the pricing range. Passage Bio is expected to offer 7.4M shares between $16 and $18 a share, and this is one thing to keep in mind in an IPO. PASG expects to price its IPO on Feb. 27, and if it prices above $18… that’s a signal it could pop.
On the other hand, if it’s anywhere on the low-end of the range, it’s an indication traders and investors don’t want in on this IPO. It signals to me the stock could go in either direction.
PASG has a strong underwriter — JP Morgan Chase which has led 29 IPOs over the last 12 months, achieving an average 3-month return of 51%. Not only that, but healthcare IPOs have been hot… and over the last year, they’ve returned 62%, on average.
I think PASG could be the next hot IPO, but we’ll have to wait and see until the pricing comes out and the first trade date. So if I do decide to trade PASG, I’ll be sure to let my clients know about my plans and thoughts.
Today I’m going to talk to you about an indicator that when applied correctly— it can improve your timing on entries and exits dramatically. And at the end of the day—your profitability.
This oscillator is the Relative Strength Index indicator, or better known as the RSI indicator.
In this post, we will cover how the RSI times the markets and I’ll introduce you to two strategies based around the indicator.
The RSI indicator was originally developed by J. Welles Wilder Jr. and introduced in his book, New Concepts in Technical Trading Systems, written in 1987.
For all of you junkies out there let’s take a look at how this is calculated.
Pro Tip: The default setting for RSI is a 14 period but I use a 2 period for quicker signals intraday
For this example, we are going to assume the RSI is a 14 period.
RSI = 100 − [100 / [1 + (Average loss / Average gain)]]
The average gain or loss used in the calculation is the average percentage gain or losses during a look-back period. The formula uses positive values for the average losses.
For example, imagine the market closed higher seven out of the past 14 days with an average gain of 1%. The remaining seven days all closed lower with an average loss of -0.8%. The calculation for the first part of the RSI would look like the following expanded calculation:
RSI = 100 – [100 / [1 + (1%/14) / (0.8%/14)]] = 55.55
Now that we know the relative strength index formula let’s analyze how to use this powerful indicator.
Most traders use the relative strength index by buying when the index simply drops below 30 or selling when it hits 70.
And that is what you don’t want to do!
I’m not saying it doesn’t work… it’s just not the way to find the best trades.
The RSI provides several signals to traders. In this next section, we will review two powerful trade setups using this indicator.
The RSI is far more than just a signal to buy and sell stocks. It’s also a stock’s health meter to gauge the strength of a trend.
So how do we do this?
By understanding what the overbought and oversold lines indicate.
When a stock is said to be overbought, it will have a reading of over 70 on the RSI indicator.
And when a stock is said to be oversold, it will have a reading of below a 30 on the RSI indicator.
What’s it mean when the indicator is in between these key levels?
That the stock is in a strong trend and has not achieved overbought levels.
Let’s take a look at the SPY’s and see how that looks.
The SPY’s showed weakness and a strong trend with no values seen over 70 throughout the majority of the trading day.
The next strategy is the RSI divergence setup. This strategy is a key way to place counter-trend trades as a stock sells off.
Let’s take a look at how to trade against the primary trend using a divergence signal.
In this chart you can see the major trend is to the downside and the RSI supports this from never seeing values over 70 throughout the entire day.
But what if you missed the trade and wanted to trade against the trend?
Well that is where a strategy called RSI Divergence will help.
This strategy breaks down into 2 key parts:
What this means is that there is weakness seen in the stock price, but the underlying RSI is actually showing a bullish trend.
The trade signal:
Let’s take a look at how this signaled a short in the SPY’s in the premarket for massive gains on our puts.
This is where we saw a trend continuation signal in the pre-market and quickly picked up put options on the SPY’s at the open.
Let’s break down this trade further.
First, Throughout the pre-market session, I noticed the SPY’s were making new highs but the RSI failed to signal that this was overbought.
Next… the markets failed to make new highs, and the RSI also failed to make new highs. This is the start of a bearish signal in the markets.
And finally, the 10 period moving average was under the 20 period moving average, which is a bearish momentum signal.
Here is a picture of the SPY chart I used to make this decision.
So… after carefully looking over all three bearish signals, it was then where I decided to trade put options on the stock.
Remember, there is no single “holy grail” indicator or strategy you can utilize in your trading.
Instead, it’s best to understand how technical analysis can help with your decision making and give you a better entry price with your trades.
And if you were able to quickly identify the RSI continuation pattern you could have made huge profits trading the markets short on Friday too!
5 Important Facts:
Want to learn more about winning strategies and trading patterns that consistently make money in the market? Who doesn’t… right? Well, here’s your chance to learn two of the best.
Ever wonder why I reference multiple timeframes in my pre market analysis before entering trades?
Well… just imagine this…
Have you ever looked at a long trade on the 5 minute chart and thought to yourself…
“Did I really just go long and now I see a short trade on the 1 hour timeframe?”
Then you start looking at the daily timeframe.
Then the monthly, and the weekly, and back to the 15 minute.
And next thing you know you are totally confused!
Now this is where an inexperienced trader starts to doubt their own trade setup on the 5 minute chart and you either don’t trade or exit immediately.
Because you have no idea what is going on!
This comes down to one question…
Should you even be looking at additional timeframes?
Multiple Timeframe Analysis (MTA) is trading terminology that describes a specific technique used by professionals to analyze Multiple Timeframes (MT’s) in order to confirm a pattern they are trading.
MT’s allow you to “zoom-in or zoom-out” to view the bigger picture or smaller picture of the markets movements.
In other words, this technique was developed to allow traders to get out of the weeds of a smaller time frame in order to understand what is happening around them.
The MT theory suggests that all timeframes are connected to one another and every timeframe should have influences on one another.
This reference to patterns on higher or lower time frames is aimed to help traders with the confirmation of a trend or lack thereof.
Looking at multiple time frames lets you zoom in and see what the current price action of the market is doing in the last 5 minutes or intraday, or zoom out to get a macro view of the markets over the last week, month or even longer.
Pro Tip: Don’t combine weekly time frames with 5 minute time frames. This will not yield any useful information for the pattern you are trying to trade.
So let’s take a look at how this works at the most basic level using candlesticks.
Here is an example of a 1 bullish 30 minute candle and 1 bearish 30 minute candle, that when combined, make up a bullish 1 hour candle.
Check it out:
The first candle is a bearish candle, where it closed higher than where it opened and it closed near the high of the 30 minute bar.
The next 30 minutes was a bearish candle, where it closed near the lows of the day and took out the lows from the prior 30 minute candle.
Now you have two 30 minute candles and combined they create a bearish engulfing pattern
If you combine them, you will get the 3rd candle, which resembles a bullish inverted hammer candlestick.
So, this combined candlestick is just an example of how combining time frames work to help show you the “bigger picture.”
Let’s see how this same concept works on charting patterns.
This is an important thing to consider and many traders new and experienced seem to always overlook!
You need to ask yourself…
“What is my primary timeframe to trade on and what is your secondary timeframe?”
“What is the minor pattern and major pattern look for my trade”
I’ve seen new traders say they enter off the 5 minute timeframe and daily time frame as their secondary level.
To me this doesn’t make much sense.
Well…the 5 minute time frame is too much noise for the daily time frame to be your secondary reference.
So instead, my go-to primary and secondary timeframe is the 5 minute and 15 minute chart… or even as far out as the 30 minute chart.
That’s because I want to know that when I enter a short trade, the higher time frame suggests the short trade is valid, and i’m not entering short into a bull market.
So what is the Rule of 4 or 6 anyway? Well.. it’s not a law, but more of a general guideline.
Let me explain…
So let’s say you are entering off of the 1 minute timeframe.
A factor of 4 would be a 4 minute timeframe or a 6 minute timeframe as your secondary time frame.
Which is why traders use the standard 5 minute chart as the secondary timeframe for the 1 minute chart.
And if you are a 5 minute chart trader, that would mean your timeframes are the 15-30 minute charts.
Why were those chosen?
Because of the Rule of 4 or 6 as a general rule to choosing your secondary time frame.
Here are some examples you can use…
I know they sound trivial or obvious, but it is really not. There are many traders who fail to pair the correct time frames with each other.
This is just a rule of thumb and an example of a simple time frame pairing.
If you are using the 1 minute chart to trade the daily chart… you are not balancing your time frames properly!
You need to find a balance of time frames and the right balance is using the rule of 4 to 6.
Now that you understand timeframes, let’s take a look at how to combine them into an actionable trading signal on the two charts.
One of the things you want to look at is the signal on the lower time frame correlating with the direction of the higher timeframe.
If the 1 minute chart is a short trade, but the 15 minute chart shows a bullish pattern… maybe it’s not wise to trade that short position.
Let’s take a look at how this works for a long trade on the 1 and 5 minute chart.
In this chart, you can see the 1 minute chart is making higher lows throughout the day.
And if you are a trend trader, that is a signal you would typically look for.
So instead of immediately placing your trade it’s best to check out what’s happening on a higher time frame first.
Now let’s take a look at the 5 minute chart for confirmation next.
On the 5 minute chart, you can see that a consolidation pattern is forming and a breakout is soon to come.
If you were trading the 5 minute pattern alone, you would just know a breakout is about to occur… but you would not have any insight to what direction it is likely to be.
By using MT’s you can do a top down approach and identify a breakout is about to occur based on a 5 minute chart and pick the direction on the 1 minute chart. And even be able to get in early before the crowd!
So what happened?
A breakout is exactly what we got… and it was to the upside like the 1 minute chart pattern suggested!
This means that if you are bullish on your lower timeframe, and the higher time frame is also a bullish pattern, then you are ok to go long this trade.
So there you have it.
This is just one example why using multiple time frames will help get you on the correct side of the markets and trading in the direction of the major trends.
So to recap: