BGU - ALXN comment

Published : July 25 2012 at 11:10 ET

ALXN had a buyable gap up at today's open on a strong earnings report. It has since pulled back, almost closing its gap.

The risk in not buying at the open is that you have a runaway gap where the stock continues higher, putting it out of reach, ie, beyond one's risk tolerance level, assuming one uses an undercutting of the low of the gap up as their sell stop.

The risk in buying at the open is that the stock closes the gap. If the stock continues lower after closing the gap, it is generally best to sell since buyable gap ups do not close their gaps. If the stock does not close the gap but closes at the low of its trading range, one could either sell or use an undercutting of the low as their sell stop.

Thus, we have suggested one buy a half position at the open, and the other half later in the day, or in ensuing days if the stock has had a runaway gap. Often, it may pull back in the days that follow, allowing for a second entry point.

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