GAP PLAY

Dip, Pop and Pop
When the first move is a “dip,” I look for the first support level. Remember, if a gainer is going to hold its strength, we won’t see much profit-taking at the open, and plenty of buyers will be lined up to carry the stock to higher highs. So the pullback should remain shallow, meaning I am looking for support to form at the very first level down.
Gainers are usually opening far above any pivots, so for support levels, I will be watching things such as the premarket low, any nearby whole numbers, moving averages and sometimes the previous day’s intraday high. If the gap is large, first support should come in well above the previous day’s closing price. The opening price is the “make or break line” and is the most important pivot to either overtake or fail on.
I want to see a move up and over the open price — and a break above the premarket high — to confirm that the uptrend is continuing.

Pop and Pop
When the first move is a “pop” from open, I will wait for a pullback before going long, and I might even short the pop, depending on the size of the gap. The reason is a large gap, plus any early buying, creates a lot of incentive for profit-taking, so the first climb in that case will usually be more of a short-lived pop before a deeper pullback comes in.
For first resistance levels, I will be watching things such as the premarket high, any nearby whole numbers and any previous resistance levels on the daily chart that might be nearby. Remember, if a gainer is going to hold its strength, we won’t see many people taking profits. Any short will be a small scalp against the trend, but the safest trades with the most potential will be with the trend on a counter move with its reaction(make or break line) to the opening price.
From off that first top, the pullback should remain shallow if the uptrend is continuing, and it often bottoms at a higher low, near the open. Sometimes the premarket low might also act as a support barrier. That bottom is your best long opportunity or moves counter to the trend and catalyst sentiment. The next climb should then hit higher highs. We need that higher high to confirm a continuation of the uptrend; otherwise, we could have a double top, which could be a short opportunity.

Every catalyst news stock is different, but they do follow similar patterns. Knowing those patterns prepares us with an instant game plan when we recognize them occurring which is retained as implicit knowledge for use and helps recognition when in the zone(Yoda State). And even when they break from a pattern, we can use those red flags to create new opportunities.

*The patterns could present themselves in different timeframes and could be seen in the 3 min, and/or 10 min and/or sometimes the 60 min.

* On GAP DOWN you reverse the rules. J

*A breakdown of either formation is bearish and should be shorted

*The bigger the pullback(drop) the weaker the trend.
Watching what type of pullback-shallow bullish; deep bearish

*Watch Open price reactions-the opening price is very important and should be a major pivot line(the make or break line)

* Create pivot lines for pre-market low, nearby whole or strike numbers, moving avg., previous day’s intraday high and analyze using Google Finance “extended trading” charts.

*Sentiment analysis with TRIN and TICK indicators as well as overall market indicators(VIX) are an important factor in analyzing the risk/reward ratio

*Draw trendlines and try to catch the contra- move on a trend (i.e. buying a dip on a bullish report and a bullish trend formation)

*If flat lining with confirming volume occurs this portends strength. Watch for the sharp sell off breaking technicals.
Manage risk through asset allocation and formulating and adhering to stop losses