Last week I wrote about INFI and described what I would want to see to get long. I identified critical levels of support and resistance. A detailed plan was formulated, and I wrote what needed to happen for the stock to break higher and for bulls to pull the trigger on a long position.
So let us look back at how this played out and how a long position could have been managed.
A quick refresher of Infinity Pharmaceuticals (NASD: INFI)
Per Yahoo Finance, Infinity is a biopharmaceutical company that focuses on developing novel medicines for cancer patients. The company’s lead candidate is IPI-549, which is an orally administered clinical-stage immuno-oncology product candidate. It is in Phase 1/1b clinical trials to treat triple-negative breast cancer, solid tumors, and ovarian cancer.
Yesterday shares of INFI were up 38.21%. Performance over the year is + 231%, and performance year to date is + 38.21%.
Yesterday the stock broke the downward trend on the daily chart signaling a change in momentum.
Float: 86.79m
Market Cap: 285.68m
ATR: 0.36
Short Interest: 5.11%
What caused the stock to gap up yesterday?
JP Morgan analyst Anupam Rama upgraded INFI from neutral to Overweight yesterday and announced a $6 price target. This follows the Well Fargo upgrade on July 28th from equal to overweight and a price target of $14.
The Result: shares increased 38.21%, closing at $2.93.
The Teachable Moment:
The beauty of having a plan is that it allows me to react to the price action. This takes the stress and hesitation out of the trade. So it would help if you always had a detailed trading plan prepared.
In the article last week, I laid out the following:
- $2 and $2.20 is vital support.
- $2.60 is critical resistance.
- The first target is $3 if the stock breaks over $2.60.
- After a first-leg higher, it is usual for the stock to digest the move and consolidate for a couple of days. If this happens, I would want to see the stock trade between support and resistance.
First, let’s take a look at how INFI traded BEFORE it broke out:
The stock digested the initial leg higher for two days, as I suggested. During that consolidation, INFI traded between support and resistance. Critical support held up. The stock briefly got below $2.20 but did not spend time below this essential area of support. It never tested support of $2. Yesterday, with news of the upgrade, the stock was held in the upper part of the range and consolidated near the resistance of $2.60 in the pre-market. This action confirms that the trade is setting up.
The Breakout Trade
Off the open yesterday the stock was trading firmly above pre market resistance which is bullish. After consolidating for the first thirty minutes of the morning the stock broke above critical resistance of $2.60. This was the moment to buy.
Volume increased on the breakout and the stock firmly held above $2.60 indicating that resistance had now turned into support.
At that point, a stop could be placed either below the VWAP at $2.55 or below the morning low of $2.40. The $2.55 stop would be a momentum trading stop, whereas the $2.40 stop would be an intraday swing stop with a larger move in mind.
As I mentioned, $3 was the initial target. Unless the stock would break below the VWAP or have negative breaking news, $3 would remain the target.
As you can see, coming into midday, the stock roared higher and extended itself from the VWAP when trading above $3. At this point, the stock also traded the most volume of the day. This was the perfect signal to spot the opportunity or close out the entire position.
What’s next for the stock?
New critical support for the stock is $2.80 and $2.60. Resistance is now $3 – $3.13. If the stock spends time holding above $3 and can break above yesterday’s high, I believe this could reach my next target of $3.50.
