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