PPR - Lesson on buyable gap ups

Published : November 3 2011 at 10:39 ET

Buyable gap ups are always in context with a) the stock's fundamentals and technicals, b) the overall market, c) current market conditions.

Since the current market has been volatile, we have advised pyramiding in slowly into a position, letting price prove itself.

With gap ups, one can wait until the stock settles down after it opens and establishes a probable low. If the stock is gapping up from a position of great technical strength and moves higher after it opens, a small position can be bought. This is done by examining the intraday chart.

With FIO in today's trade, out of the starting gate, it sold off, then undercut the prior day's closing price. This is always a negative for any buyable gap up situation. The gap has been closed but truly powerful buyable gap ups do not close their gap but continue higher from the gap up point.

Should FIO have a strong close, it will be on substantial volume. It could then be treated as a base breakout followed by its original gap up on October 24, 2011. Keep in mind that since it is an IPO and has come straight up from the bottom, it is subject to greater volatility, so pyramiding into the position can be a viable strategy.

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