Gap  Ups  R  Quick  Winners

Successful investing doesn't require sophistication and complexity; all that's necessary is a healthy dose of common sense."

By John Bogle, Vanguard funds founder

Last Sunday night when I was composing my post, I had absolutely no inkling that the market would take a turn for the worse during the week.  No one can predict what the market will do on any given day.  On Friday May 3rd, a position was initiated on $DMRC at the market open for $47.51.  The stock had gapped up +44.8%  after earnings report on May 2nd with volume that was 14 times the average trading volume of 135,000 shares per day.  Institutions are the ones that determine how fast and how high the stock will make a move during earnings.  This is a very thin stock with the market cap of only $700 million.  They have a very limited number of shares.  Within a week, the stock has climbed another +22.67%.  The stock is  +76%  within 8 days of trading.  This is why one ought to initiate a stock position on a stock that shows such powerful gap ups  during earnings report.  

Currently we have 10 distribution days between the  $SPY  and $QQQ.  IBD(Investors Business Daily) has changed the market pulse to  "Market Under Pressure".  This is the time to conserve your capital and harvest profits.  We are getting towards the end of the earnings cycle with over 90% of the  $SPY  already gone through the earnings confession.  The performance of the 3 major indexes last week was:

1. $SPY    ...  - 2.02%

2. $DJI      ...  -2.12%

3. $QQQ   ...  - 3.20%

$SPY  and the  $QQQ are still getting support at the 50 day sma(simple moving average).  We as retail investors ought not to allow our stocks to plummet past below the 50 day sma.  If the institutions support the stocks at the 50 day sma and the stocks trades in higher volume, one might consider adding more shares and scale up in stock position. 

4  Stocks  that  Gapped  up  

On Friday May 3rd, there were 4 stocks that had gapped up from earnings report.  Here is the performance of those 4 stocks once a position was initiated at the market open on Monday May 6th:

1. $OLED     ... - 0.14%

2. $MELI      ... - 1.37%

3. $LPLA      ... + 1.09%

4. $MNST    ... + 1.53%

Average performance for all the 4 stocks was + 1.11% for the week while the $SPY had corrected - 2.02% and the $QQQ had corrected  -2.12%.  

These 4 stocks are trading above the 20 day sma while the $SPY (proxy for general market performance) as well as $QQQ (proxy for growth stock performance) are below the 20 day sma and hovering around the 50 day sma.  Institutions are not giving up on these stocks while the general market is going through correction right now.  This is why identifying growth stocks that gap up during earnings announcement can help retail investors profit handsomely in the market.

Happy Trading!

Amin