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Thursday, April 26, 2007

How I Trade Earnings Gaps

This is a one minute chart of AAPL, which gapped up on earnings. I watch for at least a half hour before placing an order. Usually, the stock will sell off a bit after gapping up. If you had patience and waited an hour, you would have a very nice entry opportunity around 98.50-98.60.
The 5-minute chart shows the rsults. AAPL went as high as 101 intraday. The fact that it sold off in the last hour is not relevant to this illustration. The point I want to make is: don't buy the gap until AT LEAST one half hour after the market opens.

WARNING: DO NOT buy gaps on anything other than earnings. Analyst upgrades, rumors, or Cramer touts rarely follow through in the days after the gap, but earnings gaps frequently follow through to very large gains.
JSDA gapped up on it's last earnings report on very high volume and nearly doubled in about a month. AMZN Gapped on earnings yesterday and tacked on another 10% today.

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