Monday, July 20, 2009

Gaps and Bases - SYMC and AAN

Click on Chart to Enlarge

The chart above is AAN. It has earnings tomorrow I believe. I wanted to post a few charts looking at how to interpret gaps and factor that into your analysis. AAN shows a couple decent size gap ups off the Nov low, with the first never being filled and the second one acting as support on the subsequent declines. Then in April there was a huge volume gap up which has been acting as support on the recent pullback. The decline after that gap makes a double bottom kind of base if you are familiar with Investor's Business Daily names for bases. Big gaps like this should either not be filled during a stock's run, or they should at least act as a support area. So look at the charts for the notes, but this could be a possible breakout play to buy the stock. However, any move below the recent low should negate some positives of the pattern.

Click on Chart to Enlarge

The chart above is SYMC, Symantec. This chart shows a monster volume gap down in May which looks to be a breakaway gap down. Gaps of that size and volume will typically not be completely filled on a subsequent rally. However, an ideal shorting opportunity can occur when price moves up into the gap area with an ABC type of correction. A stop would go 1 penny above the high in May. Also, as per IBD suggestions for shorting, first and foremost you want to see the market in the early stages of a correction to consider shorting. That is debateable right now, so it may be worth waiting for how IBD suggests entering, which is on a large volume (volume > 50 day MA) close back below the 50 day MA and then put a stop no more than about 7% above your entry.

Other stocks with pretty good looking breakaway gap downs are GRMN and WAG. So anyone interested could look further into those charts if interested in shorting.

This weekend I went through the charts of all 500 S&P 500 stocks to try to gauge whether this recent rally is an exhaustive type of move or a breakout type of move. I didn't come to a solid conclusion, but I found quite a few stocks that look set up for major longer term reversal from a pattern analysis. On the other hand, there are many stocks breaking out above recent highs on heavy volume. They are well extended from any type of longer term low risk buy point or from any type of major basing pattern. So while strength is strength, I don't know how long it will last.

There seems to be a major disparity right now in view points on the market. From reading comments on a bunch of blogs, there seems to be such a panic among bears and even several who decided to go long the last couple days, that this may be a last major shakeout of bears before a major decline. There are both Mega Bears or Mega Bulls right now, and the synthesis of the psychologies makes for a very uncertain consensus in the retail trader's mind from my take on it.


  1. from the looks of things, we have to be very, very close to the top here. i would love to see a break in the 20 day ma on the 60 today. or even the 10 day ma for starts.