The Importance of the Opening Level in Gaps. $CCL $RCL $ADBE $WAG $study

I never leave a position open in a stock that will have an earnings release. That is gambling in my book. Once the earnings are out they offer excellent volatility, especially in a week where the indexes barely moved.

All three broke out after the earnings release, at which point you have to decide whether you will fade the move or not. Making your own assessment of an earnings report and what the market reaction should be is risky and difficult ; a better option is to wait for the market to tell you what to do.

I suggest using the opening level as a guide. If a stock is going to break out convincigly it must not re-visit its opening price for it shows lack of certitude on the part of the break out. Its like a 400 meter runner that starts strongly and opens a distance to the other runners and slowly sees it reduced as the race progresses. You might want to short these and go long those that start strong and never look back.

ADBE gapped up 6.2% to $31.00 and never really went anywhere.

WAG gapped up 7.9% at 39.75 and had an even cleaner break of the opening price than did ADBE.

RCL had a smaller gap up of  2.6% . It behaved differently than the previous two in that it re-tested the opening price and it held. The opening price became an important support.

What happened to RCL was even more interesting although it had no earnings release. It gapped up 3% and never looked back on its opening price, never giving a hint that it might be a good short despite its apparently exaggerated move. In fact you should be looking for support levels from which to go long in powerful moves like this that basically could not care less where the opening level was. Its the runner that starts strong and finishes strong.