When a stock gaps higher and keeps running, it generally tells me that the top of gap support is what we need to concern ourselves with. It's definitely not a guarantee that it holds, but the odds are greater. When I trade stocks, it's all about trying to situate the odds in my favor. On July 15th, Waters Corp (WAT) saw an extremely positive reaction when it raised its revenue guidance. At one point during the trading day, WAT was up more than 20% on the news. Since that time, however, we've seen the actual quarterly results come in and WAT has moved all the way back down to the top of gap support, despite beating consensus estimates in terms of both revenues and EPS. Earnings saw a very strong beat, $2.10 actual vs. $1.53 estimate. Patient investors/traders could be rewarded now, though, with WAT back at key gap support:
We never know for sure which direction a stock might turn, but I do know this: buying WAT at its current level provides a much better reward to risk opportunity than buying it 2-3 weeks ago. (Disclosure: I own WAT shares.)
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Tom Bowley, Chief Market Strategist