For the launch of the Monster Breakouts Education Series, the first chart I have in the series is a Biomedical company that has been in the spotlight the last few months. Biogen Idec (BIIB).
This education series is focused on one primary task, to feature some of the best, cleanest CANSLIM breakouts since the 2008 crash. While today’s market is arguably a tougher market for CANSLIM investors than any time in history, there is money being made off breakouts. The key is finding true winners.
View the stock chart below then refer to the key points as references to break down the setup and eventual breakout. The base we are focusing on here was a 7 month cup with handle base that formed from March through October 2010. This was the original base that started an 80%+ move for the stock.
From MarketSmith, “Biogen Idex develops treatments for multiple sclerosis (MS), cancer and autoimmune/inflammatory diseases.”
1. BIIB begins forming its bottom by snapping out of its long term downtrend on strong accumulation volume. The 50 MA proved to be too strong of resistance which lead into a retracement back down to $46 to test lows.
2. A critical turning point for the stock. $45.96 is not pierced (no lower lows) and the stock gaps on huge volume (2nd highest dating back the last year) to re-test the 50 day moving average (MA) resistance which is broken several days later. A bottom is officially in for BIIB.
3. After a quick 10%+ run-up, BIIB establishes a top at $58.16 which it tests once more before trending back towards its freshly uptrending 50 MA for support. This is the start of the handle of its base.
4. The stock breaks $58.16, a technical buy point, but immediately reverses back into its base the next day (a sell signal).
5. News causes BIIB to gap to the downside on heavy volume. This is the last shake out of weak investors and the stock spends the next month trending up towards its high at the time of $60.28. Note the lower volume heading into the breakout at point 6.
6. Volume jumps on increasing volume as BIIB surges out of its base, buypoint $60.40, to claim fresh all-time highs.
What makes the BIIB breakout a bit more uncommon is the fact that once it broke to fresh highs, it never returned to its base. This is every CANSLIM investor’s dream. Why? It means that there was no risk of any stop loss getting triggered prematurely.
The weekly chart below shows the setup, breakout, and price action from the last 1 year and 8 months. Note the distinct support and resistance.
Since its Cup & Handle breakout in October 2010, BIIB has run up to a fresh high of $109.63 on 6/29/11; a return of 81.5% for investors.