Bulkowski’s Stock Upgrades

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A stock rating upgrade by a broker is a bullish event, but only for a time. Price may breakout upward but it soon collapses. Discovered by Thomas Bulkowski in the fall of 2003. For more information, see pages 950-964 of the book Encyclopedia of Chart Patterns, Second Edition, and the following.



Important Results Identification Guidelines Trading Tips Example

Important Bull Market Results

Overall performance rank for up/down breakouts (1 is best): 2 out of 6; 5 out of 5 (worst)

Break even failure rate for up/down breakouts: 18%; 38%

Average rise/decline: 24%; 12%

Throwback/pullback rate: 63%, 37%

Percentage meeting price target for up/down breakouts: 81%, 67%

Identification Guidelines

Characteristic	Discussion
Announcement	A broker publicly upgrades the stock.
Wide swing	Look for announcements in which price makes a large intraday swing, 2 or 3 times the average daily intraday price swing over the last month.
Upward breakout	The breakout is usually upward, and it occurs when price closes above the high made on the announcement day.
Downward breakout	Downward breakouts occur when price closes below the announcement day’s low.
Volume	Heavy on the announcement day.
Behavior	For upward breakouts, price rises, rounds over, and then declines. For downward breakouts, price drops but pulls back almost half the time.

Trading Tips

Do not trade this in a bear market; it’s the worst performing event pattern. Upward breakouts sees price rise but only for a time. Downward breakouts have a tendency to bottom in less than 2 weeks, so they are not good short candidates either.

Trading Tactic	Explanation
Measure rule	See the Measure Rule figure to the right. Using the announcement day, subtract the intraday low (point B) from the high (A) and multiply the difference by the above “percentage meeting price target.” Add the result to the intraday high (A) for upward breakouts, or subtract it from the intraday low (B) for downward breakouts to get a price target (C, shown for upward breakouts only).
Confirmation	Price confirms the pattern when it closes above the announcement day high, or closes below the announcement day low. Wait for price to confirm the pattern because the breakout can be in any direction.
Buy	After a downward breakout, price should bottom and then begin moving up. When that happens, buy, but be aware that it may be a pullback and price may tumble once the pullback completes.
Sell	After an upward breakout, price peaks and turns down. If that happens, sell or sell short.

Stock rating upgrades event pattern measure rule

The Measure Rule

Example

Stock rating upgrades event pattern example

The above figure shows an example of a stock rating upgrade event pattern. On August 9, a broker raised it rating on the stock. The stock closed above the intraday high posted on the day of upgrade 3 days later, signaling an upward breakout. Price rounded over and headed lower, bottoming 22% below the close on the upgrade day.