After a massive rally last week, Doximity ($DOCS) has pulled back to short-term support and is now forming a powerful bull flag chart pattern. Here’s how to trade it with the ideal entry and exit points.
Doximity ($DOCS) is a cloud-based medical growth stock that just launched its IPO in June with a thirteen billion dollar 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 August 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 August 13 and 16, but volume was still lower than the breakout volume (which is bullish).
Doximity Buy Setup
On August 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 August 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.
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