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BGU - MELI 5/13/13

Amazon.com Latin American equivalent MELI gapped up on May 7 last week on a strong earnings report. In prior years, its price/volume pattern has been quite volatile and sloppy, but the most recent action on the right hand side of its base has been more orderly. The low of its gap up day incurs about an 8.2% risk if bought at Friday's closing price. Little to no porosity should be given (porosity is the amount allowed for the stock to undercut the low of its gap up day) as 3 complete days have traded since the gap up, so the 6-day rule on little to no porosity should most likely apply. In other words, if the stock were to undercut the low of its gap up day over the next 1-2 days (day 4 and 5), that would be an 8.2% drop from Friday's close so, contextually, that would be a negative, so the stock should then be sold with little to no porosity.

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