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STRATEGY OF THE WEEK

It is earnings season and this week is the busiest for announcements so there will be lots of action. If a company impresses investors with their announcement of earnings, the stock will often gap higher. These price gaps are a bit scary to trade because the distance down to support is far and that makes entry risky.

Often, these big gappers will pull back for a day or two after the big gap up and then resume their upward trend. This presents a great opportunity for the savvy day or swing trader who does not forget about the hot stocks of a few days ago. When stocks are hot on news, keep them on your watch list for a few days and wait for the echo, a break of a pull back after the gap. Here are two stocks that made big gaps in the last week and then went on to surge higher after a brief pause. These are not here for you to trade now, but as examples of what to watch for as other companies do the same thing on the heels of earnings news:

STOCKS THAT MEET THAT FEATURED STRATEGY

1. MSFT
MSFT sold off in to the close on Friday but broke that pull back this morning at around 10:22 and went for a good push up in to the close, giving the day trader a better than 3 to 1 reward for risk pay off. That means $1000 risked made over $3000 for the day.

2. MCD
MCD is a stock that I shorted on the open after it gapped up on good news. I did not hold the position long as it soon stabilized and resumed its upward trend. Nice break of the pull back at around 10:30ET on Oct 22 that lead to a nice run over the next couple of days.