After a massive rally last week, Doximity (NYSE:DOCS) has pulled back to short-term support and is now forming a powerful bull flag chart pattern. Here’s how to trade it with the ideal entry and exit points.
DOCS is a cloud-based medical growth stock that just launched its IPO in June with a $13 billion market cap.
We monitor all liquid IPOs on our Wagner Daily watchlist, as the lack of overhead supply in IPOs can lead to explosive moves over a short period of time.
DOCS forms a bull flag
DOCS broke out from a month-long trading range on Aug. 11, as the price gapped and closed 33% higher on volume that was roughly 3x greater than its 20-day volume average.
The price and volume action remained strong the following day, as Doximity gained another +13% on higher volume.
Since the breakout, the price has chopped around in a fairly tight range (given the sharp run-up), with volume tapering off as well.
Ideally, we would have liked to have seen the volume dry up a bit more on Aug. 13 and 16, but volume was still lower than the breakout volume (which is bullish).
Doximity Buy Setup
On Aug. 17, DOCS broke out from a tight, bull flag-like consolidation, but failed to follow through to the upside. DOCS closed well off the highs of the Aug. 17 session, but the price action tightened up on the hourly chart, just beneath the 20-period exponential moving average.
Take a look at the 60-minute chart time frame below:
The 20-period EMA on the hourly chart is often a low-risk pullback entry point for stocks that have made a significant move over a short period of time (such as 2-5 days).
While many traders wait for a pullback to the 10-day moving average (on the daily chart), we often see the 20-period EMA on the hourly chart provide support before the next wave up.
DOCS is potentially in play over the next one to two days IF the price can punch through the 20-EMA/60 min. chart and hold. However, all bets are off if the NASDAQ and/or S&P 500 break down below Tuesday’s lows.
DOCS Exit Strategy
If buying DOCS on the bull flag breakout, consider selling into strength after it breaks out to new highs. Rather than guessing the top of a rally, we typically use trailing stops to maximize profits on our winning swing trade entries. However, we have observed over the years that IPOs can be difficult to hold through a “normal” pullback.
As such, we employ a slightly different exit strategy with IPOs. Rather than locking in gains by letting the price fall to our stop price, we prefer to proactively sell most IPOs into strength.