The set-up: Merrimack Pharmaceuticals (MACK) is a pure technical play right now, coming off of strong volume on Friday when the shares gained about 9 percent.
Looking at the chart, there are two patterns at work here. It’s almost like a W pattern, with a double-top breakout. If we see the breakout continue to $1.51, MACK could move to the next resistance level which, based on the 50-day moving-average line – is $1.82.
Bonus point: Not only do I like the double-top breakout I am seeing, but the short position in Merrimack is 26 percent, which after Friday’s move and with the current upward potential could force a short squeeze here as short sellers cover their positions and try to minimize their losses.
The play: I’ll buy the $1.51 breakout looking for a 5 to 10 percent move toward that 50-day moving-average line, and the potential for more. Because that possible upside is more than 30 cents, if I get the gain I’m looking for, I most likely will sell half of my position and look to ride the rest into strength.
If we get the $1.51 to trigger the buy, I’ll set my stop just above Friday’s low of $1.35.
Jeff Williams is the lead trader of PennyPro.com. He is a short-term trader of stocks under $10 a share. At the time this article was published on RagingBull.com, he had no open positions, options or orders in MACK, but was planning to trade the stock as described in the article. He last traded MACK on June 7.
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