![]() The buying opportunity occurs at any given point during the calm – a 1 to 3 day wait seems typical. In the days after a “storm”, the stock must make an NR7, a narrow range bar (NRB) (day’s range less than half the stock’s average true range) or have a real body (distance between the open and the close) less than half the stock’s average true range (which might catch reversal candlesticks like doji, hammers or shooting stars). Ideally, the stock will reverse the entire post-earnings gap to provide a definitive test for traders (buyers in the case of FL). Sometimes this period looks like a brief consolidation where the stock drifts. The calm will be a relative deceleration in the trading action where volume and the daily price range contracts for a short time period. ![]() In the case of FL, the storm is the post-earnings gap up. The stock still has a “decent” chance to recover its post-earnings strength after what is called a “ calm after the storm” pattern. However, since the stock still closed the day with a substantial gain, this gap and crap is not a topping pattern in of itself. This gap and crap (or trap) was dramatic. Sellers faded the stock off its intraday high for a 6.0% gain at the close. Foot Locker (FL) printed a major post-earnings breakout to a 21-month high.
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