As of 12/04/2020
  Indus: 30,218 +248.74 +0.8%  
  Trans: 12,742 +155.26 +1.2%  
  Utils: 856 -10.76 -1.2%  
  Nasdaq: 12,464 +87.05 +0.7%  
  S&P 500: 3,699 +32.40 +0.9%  
YTD
 +5.9%  
 +16.9%  
-2.6%  
 +38.9%  
 +14.5%  
  Targets    Overview: 11/30/2020  
  Up arrow30,700 or 28,250 by 12/15/2020
  Up arrow13,500 or 11,700 by 12/15/2020
  Down arrow830 or 925 by 12/15/2020
  Up arrow12,500 or 11,400 by 12/15/2020
  Up arrow3,750 or 3,400 by 12/15/2020
CPI (updated daily): Arrows on 11/2/20
As of 12/04/2020
  Indus: 30,218 +248.74 +0.8%  
  Trans: 12,742 +155.26 +1.2%  
  Utils: 856 -10.76 -1.2%  
  Nasdaq: 12,464 +87.05 +0.7%  
  S&P 500: 3,699 +32.40 +0.9%  
YTD
 +5.9%  
 +16.9%  
-2.6%  
 +38.9%  
 +14.5%  
  Targets    Overview: 11/30/2020  
  Up arrow30,700 or 28,250 by 12/15/2020
  Up arrow13,500 or 11,700 by 12/15/2020
  Down arrow830 or 925 by 12/15/2020
  Up arrow12,500 or 11,400 by 12/15/2020
  Up arrow3,750 or 3,400 by 12/15/2020
CPI (updated daily): Arrows on 11/2/20

Bulkowski on a Stock Offering Setup

 

My book, Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., pictured on the left, has a section covering 10 event patterns, but, sadly, common stock offerings is not one of them.

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

-- Tom Bulkowski

$ $ $

Stock Offering Setup: Background

I was playing with common stock offerings, trying to build a trading setup on the behavior of the event pattern. Since price drops after an offering, I researched shorting a stock and lost about $63 per trade on a $10,000 investment.

I tried going long and made only $53 per trade. Yawn.

Then I tried something new and made $2,500 per trade (on average). What's better is the setup has never failed (100% win/loss ratio)! We've struck the mother lode! Well, there is a tiny problem. It's called drawdown.

The Common Stock Offering Setup

Here's what I did. I looked at 267 common stock offerings from March 2004 to November 2009, which includes the recent bear market.

After the company prices the common stock offering, do the following.

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Stock Offering Setup: An Example

That's all there is to it. The secret, is buying and holding, of course, and being willing to ride out any dips along the way.

Picture of Atlas Air Worldwide (AAWW) on the daily scale.

For example, shown is a picture of Atlas Air Worldwide on the daily scale. Point D is the day price closed before the offering of common stock. It's the target price for the trade. The company announced the offering at A (but did NOT price the offering yet) and price gapped lower. They announced the PRICE of the offering at B. Many times, the announcement and pricing occur on the say day, but not in this example. Wait until they PRICE the offering.

From B onward, place a buy stop a penny above the day's high and lower it each day as the high price drops. That will get you into the stock at the opening price at C. The percentage move from C to D should be at least 10%. Otherwise, skip the trade (in other words, don't actually place a limit order until the high price is more than 10% below D. You don't have to follow this step).

Once you are into the trade, place a limit order to sell when price hits D.

That's going to take some time, so hold your nose while the stock fluctuates. In both bull and bear markets, the stocks are going to drop below the purchase price. One in my study dropped 84% before recovering. If you want to limit drawdown to 10% (think of placing a stop 10% below the buy price), then gains drop from $2500 to $560, on average. Yes, using stops are painful...

The trade shown here made 33% in 34 days.

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Stock Offering Setup: Bull Market Numbers

Here's the numbers.

Stock Offering Setup: Bear Market Results

If including bear market results...

Stock Offering Setup: Bull and Bear Market Trades

If you DON'T require a 10% minimum profit margin (the distance from C to D in the figure), for bull and bear market trades...

-- Thomas Bulkowski

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See Also

 

Support this site! Clicking any of the books (below) takes you to Amazon.com. If you buy ANYTHING while there, they pay for the referral.

My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

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