Waiting Patiently For Gaps To Be Tested

In Tuesday's DMR, I provided a half dozen examples of earnings gaps and how, in many instances, the top of the gap will provide the key support during pullbacks.

If you want to look at charts, check out MEDP and CALX as two perfect examples. Both of these stocks saw their gap support tested rather quickly. Sometimes, gaps will be tested much later, possibly weeks after the gap prints. Catalyst Pharmaceuticals (CPRX) is an example of having to wait weeks for gap support to be tested. Check this out:

Enter Catalyst Pharmaceuticals Partners, Inc. (CPRX):

I see the current range here as roughly 11.50 to the downside and 16.20 to the upside. CPRX closed on Tuesday at 15.33, not too far from key price resistance. It belongs to the very strong pharmaceutical group ($DJUSPR), which has been an excellent relative performer since mid-August (bottom panel in chart above). It's difficult to predict which way CPRX is heading after earnings are reported; however, I do expect a strong report. Most pharmaceuticals have been beating consensus estimates and I'm expecting nothing less from CPRX. Until it breaks out or breaks down, though, I'd trade CPRX based on its current trading range.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.