Earnings-Related Gap Support Provides Solid Reward-To-Risk Entry

I love trading earnings gaps.

I say it over and over and over, but that's the level where new information is released and the bulls and bears fight it out. In particular, I love gap ups followed up by immediate and heavy intraday buying. When good news is released and everyone wants to buy, market makers provide liquidity by shorting. When we see heavy buying AFTER the open, it's an indication of overwhelming demand. Usually, when/if a stock returns to the TOP of gap support, it becomes an excellent trading opportunity. Check out Amphenol Corp (APH), an electrical components & equipment company ($DJUSEC):

Enter Amphenol Corp (APH):

After gapping up just above 71, APH immediately soared to 76-77 over the next two days - on heavier-than-normal volume. It managed to make it to 80 before profit taking kicked in from mid-August. The actual gap support is 71.28 and APH traded as low as 71.36 on Friday of last week and 71.50 yesterday. I'd be a buyer at 71.28, looking for a potential rebound back near 80. In the meantime, any close beneath 71.28 would likely lead to a test of the BOTTOM of gap support at 69.34. I'm expecting to see a rally in APH shares at any time.

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