As of 12/05/2024
  Indus: 44,766 -248.33 -0.6%  
  Trans: 16,976 -190.93 -1.1%  
  Utils: 1,047 +2.22 +0.2%  
  Nasdaq: 19,700 -34.86 -0.2%  
  S&P 500: 6,075 -11.38 -0.2%  
YTD
 +18.8%  
 +6.8%  
 +18.8%  
 +31.2%  
 +27.4%  
  Targets    Overview: 12/02/2024  
  Down arrow44,000 or 46,000 by 12/15/2024
  Down arrow17,025 or 18,000 by 12/15/2024
  Down arrow1,025 or 1,100 by 12/15/2024
  Up arrow20,000 or 18,500 by 12/15/2024
  Up arrow6,200 or 5,900 by 12/15/2024
As of 12/05/2024
  Indus: 44,766 -248.33 -0.6%  
  Trans: 16,976 -190.93 -1.1%  
  Utils: 1,047 +2.22 +0.2%  
  Nasdaq: 19,700 -34.86 -0.2%  
  S&P 500: 6,075 -11.38 -0.2%  
YTD
 +18.8%  
 +6.8%  
 +18.8%  
 +31.2%  
 +27.4%  
  Targets    Overview: 12/02/2024  
  Down arrow44,000 or 46,000 by 12/15/2024
  Down arrow17,025 or 18,000 by 12/15/2024
  Down arrow1,025 or 1,100 by 12/15/2024
  Up arrow20,000 or 18,500 by 12/15/2024
  Up arrow6,200 or 5,900 by 12/15/2024

Bulkowski on Trading FDA Drug Approvals

For more information on this pattern, read Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., pictured on the right, pages 880 to 892.

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

$ $ $

When the FDA approves a drug and it's announced to the public, price can breakout in any direction, but the probabilities say that price will trend down soon after. This event pattern isn't worth trading because it has such poor performance. Discovered by Thomas Bulkowski in the summer of 2003.

Important Results
Identification Guidelines
Trading Tips
Example
See Also

 

FDA drug announcement event pattern

Ideal FDA Drug Announcement Pattern

Trading FDA Drug Approvals: Important Market Results, Upward Breakouts

Overall performance rank (1 is best): 6 out of 6
Break even failure rate: 34%
Average rise: 20%
Throwback rate: 61%
Percentage meeting price target: 81%

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Trading FDA Drug Approvals: Identification Guidelines

CharacteristicDiscussion
AnnouncementNews outlets report that the FDA has approved a drug.
Wide swingLook for announcements in which price makes a large intraday price swing, preferably 2 or 3 times the average intraday range over the last month.
Yearly highFor best performance after an upward breakout, select announcements that occur within a third of the yearly high.
Upward breakoutA breakout occurs when price closes above the high posted on the announcement day.
VolumeSelect patterns with heavy announcement day volume, above the 30-day average.

Top of page More

Trading FDA Drug Approvals: Tips

Although I don't recommend trading this event pattern, there is an inverted J-shaped pattern (inverted and descending scallop) that shows promise. The following (except the measure rule which refers to all upward breakouts) pertains to that situation. A study of the pattern reveals that price declines an average of 29% in 86 days after an upward breakout.

Trading TacticExplanation Inverted J-shaped event pattern
Inverted J-Shape
Measure ruleCompute the height (intraday high minus the low) on the announcement day and multiply it by the above "percentage meeting price target." Add the result to the intraday high to get a price target.
Inverted J-shapeFor upward breakouts, look for a price pattern that is an inverted J-shape. Price moves up following a trend, rounds over, and heads back down. The figure to the right shows what this pattern looks like.
Price riseAfter the breakout, price rises between 3 and 6 weeks before beginning to slide. Ignore patterns outside that time limit.
TrendlinePrice follows a trend moving higher. A trendline drawn along the bottom of that price trend, when pierced by moving lower, is the sell or sell short signal. The ideal figure near the top of this page shows an example.

Top of page More

Trading FDA Drug Approvals: Example

FDA approves drug example

The above figure shows an example of what happens sometimes when the FDA approves a drug. News reports indicated that the company and its partner received approval to sell Abilify in the U.S. Price gapped up on the news and a nice rise followed. However, within a few weeks, the stock was moving down again, bottoming in March.

-- Thomas Bulkowski

Top of page More

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.
Legal notice for paid links: "As an Amazon Associate I earn from qualifying purchases."

My Stock Market Books
My Novels

Copyright © 2005-2024 by Thomas N. Bulkowski. All rights reserved.
Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.
Some pattern names are registered trademarks of their respective owners.
Home Advertise Contact Privacy/Disclaimer

A fool and your money are soon partners.Smiley