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A Breakout Trade That Isn't for the Faint of Heart

Perion Network shot higher after posting its latest results but the stock has a history of faltering once it hits resistance.
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Buying strength isn't for everyone, but any time a stock gaps higher on an earnings report and doesn't immediately give up its gains it deserves a spot on your watch list.

Perion Network (PERI) isn't a household name. While some traders may be interested to know that the company offers online advertising and searching technology to brands, agencies and publishers, I'm only interested in the stock's relative strength and bullish price consolidation.

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Perion released its third-quarter results on Oct. 26 and crushed its earnings per share and revenue estimates. The company also issued full-year revenue guidance that was well above consensus estimates. But again, even if you didn't know how strong the company's earnings report was, you could figure out something bullish is going on by the nearly three weeks of consolidation that has occurred above the anchored volume-weighted average price, or VWAP (in white), dating back to the Oct. 26 upside gap.

If you're not a breakout trader, you can try to buy shares on a dip toward that anchored VWAP.. It's currently sitting around $28.30, and I'd look to stop out of the position on intraday weakness or a session close under that VWAP.

Momentum traders can sit on their hands and either get long on intraday strength above $31 or wait for a close above that level. My inclination would be to day trade strength above $31 but not get too aggressive on a swing trade until the stock closes a session above that level. 

The one thing to note about PERI that isn't evident on the chart is that the stock routinely has struggled between $30 and $32. The stock broke above this area in 2013 and spiked immediately to $40, but it fell back under $30 once the bull trend ended and the stock fell back toward $2 over the ensuing four years. 

The bottom line is while the stock looks strong and can be bought against the anchored VWAP or an upside breakout, there's no reason to stay long if demand dries up and it closes under $28.

At the time of publication, Byrne had no positions in the stocks mentioned.