Technical Analysis of Gaps: Identifying Profitable Gaps for Trading (Fernando Lopez-Lezcano's Library) by Julie R. Dahlquist & Richard J. Bauer

Author:Julie R. Dahlquist & Richard J. Bauer
Language: eng
Format: epub, mobi
Publisher: FT Press
Published: 2012-06-27T16:00:00+00:00

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Figure 5.2. Daily stock chart for JAMN, May 26–June 1, 2011

But, on May 13, things began to unravel with four consecutive black candle days. The stock fell from an opening price of 5.59 on the 13th to a close of 1.52 on May 18, experiencing an intraday low of 92 cents on the 18th. JAMN’s price movement provides an example of what the results in this chapter suggest is a typical price movement after a White-Up-White pattern occurs. Investors who purchased JAMN at the open the day after the gap would experience negative 1-day, 3-day, 5-day, and 10-day returns.

On June 14, 2011, JAMN fell below 2; it closed the year at 27 cents per share. What caused this wild ride? The answer isn’t clear, but in September there were news reports that the SEC was investigating a possible illegal online pump and dump scheme. The company issued a statement on September 9 saying that they had become aware of some unauthorized Internet stock promotion in May and that Rohan Marley strongly condemned such actions. The company vowed to cooperate fully with the SEC investigation.

JAMN wasn’t the only coffee company with a wild ride in 2011. Coffee Holding Company, Inc. (JVA) began the year at 3.85 and ended the year at 7.84, an increase of more than 100%. However, that was nothing compared to what happened in between those dates. On July 11, 2011, the stock hit a high for the year of 30.98, gapping up on a White-Up-White pattern (see Figure 5.3). An investor who saw this pattern might have reasoned that the stock’s tripling in price over the prior month was an unsustainable uptrend. Thinking this was an exhaustion gap, the investor might have shorted the stock at the open on July 12 at 29.54 and enjoyed the fall that same day to a close of 22.37. The next 2 days were also black candle days with the stock closing at 18.89 on July 14.

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