ALAB Trade Opportunity Case Study
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In this post I’ll analyze the recent opportunity in ALAB - which gained 18% Friday and seems to be just getting started in an IPO Base.
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Now let’s dive in ↓
Context - Company Description and IPO info
ALAB -Astera Labs is a pick and shovel play on data centers and AI. From what I could understand they manufacture high end connectivity solutions and cables that allow for high bandwith data transfer between connected GPUs
They IPOed on March 20 and their next earnings report is on May 7. From their news release: “Morgan Stanley and J.P. Morgan are acting as joint book runners for the offering. Barclays, Deutsche Bank Securities, Evercore ISI and Jefferies are additionally acting as book runners, and Needham & Company, Stifel, Craig-Hallum Capital Group, Roth Capital Partners, Loop Capital Markets and Siebert Williams Shank are acting as co-managers.”
The Setup - IPO Base
ALAB was expected to come public at $27-$30. On March 20 it opened around $52 and rose over the course of 5 days to a peak of just over $95 - showing immediate demand.
Unless you are a very aggressive trader who specializes in IPOs, you are likely waiting for an IPO base to setup.
Nevertheless looking at a 65min chart there was an opportunity as it formed a tight area after an initial run up
The IPO Base Setup emerged a few days later, as the stock corrected then formed a range with a pivot around $74 and a low of near $66.
It should now get on your radar using a recent IPO screen like we have as a preset in Deepvue.
ALAB tried to BO on April 11 and 15, but reversed back into the range, then with the market deteriorating, pulled back hard and undercut the range lows
It closed well on that shakeout bar
The next day was inside and there was no further downside, a sign of strength. It would be back on your radar at this point.
The next day was actionable as it pushed off the range lows. In the morning if you used the inside day’s lows as a stop that would be around 6% loss. A bit wider than ideal but this is a newer IPO. You would manage risk with less size.
However ALAB didn’t show follow through and would have been a tough hold as it formed a range near the 21ema
April 25 was the setup day. Upside reversal with a strong close. Note how RMV (set here for 5 days for ipo bases) is at 0 - showing that this is as tight as ALAB trades.
A tight range right near a flat 21ema within a base is a key setup you should watch for
On a 65min chart you can see the range forming
Breakout Day - April 26
ALAB opened slightly down but quickly pushed higher pushing the prior day’s high pivot and the range pivot. Stops at the day’s low would be around 5%.
ALAB closed very well up 18%. It has not yet breached the IPO base highs but is now in an area where volatility can increase.
65 minute chart:
Ideally it continues to trade orderly and sets up a tight area around 90 and then reconfirms with another strong bar approaching 100.
It is a very volatile stock with a 10% ADR right now so it is not an easy ride. We are also in a market cycle spot where volatility is increased.
We will have to see if this early breakout holds or if it will reverse. Either way it’s a name well worth continuing to monitor.
What are your thoughts on ALAB ? (Leave a comment below)
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Richard
They have active options and I’m currently long the stock and $70 May 17 Calls. I traded in and out of ALAB with profit on their $65 May 17 Calls. Great money maker so far!
Long.