Don't Ignore This Chart!

It's Not Wise To Chase Gaps

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You have to keep in mind that when everyone wants to buy a stock (or sell a stock), it's the market makers job to provide liquidity and take the other side of the trade.  That's why so often we see stocks gap higher or lower from the previous close, only to "fill the gap" and return to that prior day's close.  As an example, check out Citrix Systems (CTXS).  After reporting better than expected earnings results, CTXS gapped substantially higher and opened at 86.50.  Its intraday high was 90.00 before hitting a low of 80.38 just six trading sessions later.  CTXS had closed at 80.52 prior to its quarterly earnings report.  Look at the chart:


Note also that in addition to filling the gap, CTXS returned to test its rising 20 day EMA, where it has seen several successful tests since late February.  That provides a second reason to like the reward to risk entry at that level.

Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
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