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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Stock Rating Upgrade Event Pattern: Summary

A stock rating upgrade by a broker is a bullish event, but only for a time. Price may breakout upward but it soon collapses. Discovered by Thomas Bulkowski in the fall of 2003.

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My book, Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book. pictured on the left, takes an in-depth look at 63 chart and event patterns, including performance statistics.

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upgrade.jpg
Stock Rating Upgrade Pattern

 

Stock Upgrades: Important Bull Market Results

Overall performance rank for up/down breakouts (1 is best): 2 out of 6; 5 out of 5 (worst)
Break even failure rate for up/down breakouts: 18%; 38%
Average rise/decline: 24%; 12%
Throwback/pullback rate: 63%, 37%
Percentage meeting price target for up/down breakouts: 81%, 67%

Stock Upgrades: Identification Guidelines

CharacteristicDiscussion
AnnouncementA broker publicly upgrades the stock.
Wide swingLook for announcements in which price makes a large intraday swing, 2 or 3 times the average daily intraday price swing over the last month.
Upward breakoutThe breakout is usually upward, and it occurs when price closes above the high made on the announcement day.
Downward breakoutDownward breakouts occur when price closes below the announcement day's low.
VolumeHeavy on the announcement day.
BehaviorFor upward breakouts, price rises, rounds over, and then declines. For downward breakouts, price drops but pulls back almost half the time.
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Stock Upgrades: Trading Tips

Do not trade this in a bear market; it's the worst performing event pattern. Upward breakouts see price rise but only for a time. Downward breakouts have a tendency to bottom in less than 2 weeks, so they are not good short candidates either.

Trading TacticExplanation
Measure ruleSee the Measure Rule figure to the right. Using the announcement day, subtract the intraday low (point B) from the high (A) and multiply the difference by the above “percentage meeting price target.” Add the result to the intraday high (A) for upward breakouts, or subtract it from the intraday low (B) for downward breakouts to get a price target (C, shown for upward breakouts only).
ConfirmationPrice confirms the pattern when it closes above the announcement day high, or closes below the announcement day low. Wait for price to confirm the pattern because the breakout can be in any direction.
BuyAfter a downward breakout, price should bottom and then begin moving up. When that happens, buy, but be aware that it may be a pullback and price may tumble once the pullback completes.
SellAfter an upward breakout, price peaks and turns down. If that happens, sell or sell short.
Stock rating upgrades event pattern measure rule
The Measure Rule
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Stock Upgrades: Example

Stock rating upgrades event pattern example

The above figure shows an example of a stock rating upgrade event pattern. On August 9, a broker raised its rating on the stock. The stock closed above the intraday high posted on the day of upgrade 3 days later, signaling an upward breakout. Price rounded over and headed lower, bottoming 22% below the close on the upgrade day.

-- Thomas Bulkowski

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Other Stock Upgrade Examples

See Also

  • Best buy days. Which day of the week is the best one to buy or sell?
  • Best buy months. Can buying at the end of the worst performing month and selling at the best performing be profitable?
  • Dutch auction tender offers. Can you make money trading these?
  • 10-baggers. Find 10-baggers using fundamental analysis.
  • Value investing. How to Pick Stocks Using Fundamental Analysis.
  • Holidays. Does the market rise or fall before and after holidays? Answer: Fall.
  • Market cap. Chart patterns in small cap stocks outperform.
  • Seasonality. What are the best months to buy and sell stocks?
  • SEC Forms. What do they tell the trader or investor?

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Chili: It's not just for breakfast anymore!