Earnings
season provides extremely heavy volume and momentum.  Its our
favorite periods of the year.  Stocks that gap heavily up on earnings news are
gapers and stocks that gap heavily down are dumpers.  Earnings season produces
the most instances of gapper/dumper plays.  The way we play these is to wait out
the initial reactions on the 9:30am open until the 3 min 5 period moving average
moves closer to where the stock is trading.  When the 3 min 5 period gets close
enough, then one of two things will happen.  It will either form a channel
tightening back to its 15 period moving average triggered by the stochastics
cross, or it will bounce off the 3 minute 5 period ma for a gap fill to the
upper or lower bollinger bands.

 

This morning, AAPL gapped down on
a weak earnings report.  The 3 minute 5 period ma eventually updated lower to
81.  That was resistance.  The 1 minute stochastics tried to cross up but it
failed and started to slip.  This trigger with a resistance at 81 set up a nice
risk reward short trade at 80.90 on the 3min 5 period ma rejection.  AAPL leaned
hard on the rejection and the 1 min stochastics slipped through the 20 band on
an extra mini inverse pup sending AAPL to the 3 minute lower bbs to cover 80.40
on the stinky 5s coil support.  This was a nice fast .50 gain on the trade based
on the dumper rule.

 

 

 

The noodles leaned through the
daily 15 period moving average at 1721 as outlined in my last article.  We have
now bounced back to the daily 5 at 1748 levels.  >From there, we are looking for
make or break setups which will either lean us to the daily 50 period moving
average near 1706 or squeeze to the daily upper bollinger bands at  1780. 

 

 

 

Feel free to send any questions
or comments to
jay@undergroundtrader.com