The news this past trading week has been all about GameStop (GME). The Reddit #WallStreetBets fueled move that targeted short sellers.

Just last week GME opened on Monday at $96.73 and reached a high of $483 in regular trading hours (higher if you include extended hours) before closing on Friday at $325.

That’s a 336% gain in one week, but the move started much earlier than that as it was building a year long base from September 2019 to September 2020 ranging from $3 to $7. The lowest GME got to was $2.61 before it started moving to the upper range. My friend Gil Morales would point out that this is an undercut and rally situation. Then in September 2020 it broke above the base high and then triggered a 2/20 EMA Weekly breakout.

 

The action since that weekly breakout has been non-stop and the picture even before last week’s dramatic move was very strong.

 

“It’s Impossible for a stock to make a big move without it appearing in this report”

So, how do you find these kinds of stocks before they run away? In this case one option would have been to monitor the Reddit forum #Wallstreetbets and sift through all the spam to try to put together a thesis for a move. That’s a lot of work and you would be subjected to many an individual’s agenda of promoting their own stocks.

That’s where Technical Analysis comes into play. The theory behind technical analysis is that all available information (both public and private) is reflected in the price action.

One report to look at daily is the 2/20 EMA Upside breakout report. It’s impossible for a stock to make a big move without it appearing in this report.

Here’s today’s 2/20 EMA Upside breakout weekly report from EdgeRater: 

The report keeps track of all the ongoing breakouts and by default is sorted with highest % Gains at the top of the list. You can immediately see the date of the breakout and number of bars in the trade. The above report is a weekly report and so the 20 bars for GME represents 20 weeks.

To find stocks that are just breaking out or in the early stages of a breakout you can sort by # Bars in trade or by Entered Today

The weekly report is good for detecting and following longer term moves but there is also a daily report that will alert to moves occuring on the daily chart. 

The daily report enters and exits a stock more frequently. You can see this in the GME example where the current trade entered on 1/13/2021 for a current % Gain of 1466% as opposed to the weekly report which entered on 9/18/2020 for a current 3700% gain. Of course the weekly report will get out later than the daily report and so you will see higher variations from MFE (Maximum Favorable Excursion) to exit.

EdgeRater PRO 2020 has some unique tools to help you test trading scenarios. I ran the 2/20 ema breakout trading system on the entire list of stocks that have weekly options for the whole year 2020. 

You can see that even during the coronavirus bear market of early 2020 the 2/20 EMA breakout system performed well. This is a trend trading system that has only 34% winning trades (due to losses being cut quickly).

By using the Profit Boost template on the trade list and tagging by symbol I was able to see the best performing stocks for the year and each individual trade in that stock. BLNK is an example that had only 20% winning trades (1 out of 5) but the winning trade had a 376% gain.

What’s next for GME?

Whenever trying to determine where a stock will likely be at some point in the future it’s a good idea to look at the stock’s option prices. A stock’s Implied volatility is the number to focus on as that summarizes all individual option implied volatilities in a VIX like calculation and yields an expected move. In EdgeRater you can apply the Expected Move Cone to the last bar of the chart. Expected move of course is only a guide and the math states that price is expected to be within the expected move cone 68% of the time. You can use another EdgeRater indicator to see how much time a stock has spent within its expected move bands and usually it’s 68%.

Even back in September with raised implied volatility levels price was contained until this happened on January 13th: 

Today Implied Volatility is incredibly high suggesting that by the end of February price could be as high as 1658.91 or as low as 63.97

Summary

The 2/20 EMA Breakout Report is a great way of finding stocks like GME before they make their big move.

Run the report on the Weekly and Daily timeframes to find more opportunities.

Run historical trade simulations to make sure the system is performing as expected.

You can easily run these reports using the 2/20 EMA breakout template in EdgeRater. It’s as easy as 1-2-3.

1. Select the Template

2. Select a list to run against

3. Press Run

Sign up today for a free 14 day trial and start monitoring the 2/20 EMA breakouts today.

 

Update (March 1st 2021)

Here’s an update to show what actually happened to $GME at the end of February. As you can see in the chart, GME ended up inside the expected move that was predicted at the end of January.

$GME end of February Update

4 Comments

  1. Tom Sunyata

    “It’s Impossible for a stock to make a big move without it appearing in this report”

    Unfortunately this does not mean that being included in this report is an indication that the trade will be profitable. You can find winning trades this way but also numerous losers. If you trade this system you need to be able to take lots of smaller losses in the hopes that the outsized gains of the few will more than compensate for the smaller losses of the many.

    Reply
    • Chris White

      Exactly, as per the BLNK example in the post. The daily equity chart is the place to look to see if overall it was a good system during the test period. Even better is to run the simulation in EdgeRater and look at the statistics.

      Reply
  2. Randy

    Hello, would you please elaborate a little on the 2/20 setup? Is it simply a 2/20 EMA crossover? Thank you.

    Reply
    • Chris White

      Hi Randy,

      The 2/20 Upside breakout system is not a crossover system but uses an entry based on 2 complete bars above the 20 period moving average. Here’s a webinar I held on the strategy: https://youtu.be/SgnlA33Tnhs

      Regards,
      Chris

      Reply

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