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A few words on Gaps in charts.......

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Pay_tience   Sunday, 03/28/10 01:38:38 PM
Re: None
Post # of 34471 
A few words on Gaps in charts.......

There are 4 types of Gaps in charts:

1. Common
2. Breakaway
3. Runaway
4. Exhaustion

CCME exhibited number 2. (Breakaway gap) in my humble opinion....

Here is some information on Breakaway gaps on the chart.....

Breakaway gaps are the exciting type of gap. They occur when the price action is breaking out of their trading range or congestion area (this was the case for CCME). To understand gaps, one has to understand the nature of congestion areas in the market. A congestion area is just a price range in which the market has traded for some period of time, usually a few weeks or so (CCME). The area near the top of the congestion area is usually resistance when approached from below. Likewise, the area near the bottom of the congestion area is support when approached from above. To break out of these areas requires market enthusiasm and, either, many more buyers than sellers for upside breakouts or more sellers than buyers for downside breakouts.

Volume will (should) pick up significantly (CCME), for not only the increased enthusiasm, but many are holding positions on the wrong side of the breakout and need to cover their short position or sell them. It is better if the volume does not happen until the gap occurs. This means that the new change in market direction has a chance of continuing. The point of breakout now becomes the new support (if an upside breakout) or resistance (if a downside breakout). *********Don't fall into the trap of thinking this type of gap, if associated with good volume, will be filled soon. It might take a long time.********** Go with the fact that a new trend in the direction of the stock has taken place, and trade accordingly.

This one to me describes what CCME is doing. To sweeten the pot, this gap is also associated with a very nice classic chart pattern and a bullish one too....the Cup with Handle. William O'Neil of IBD absolutely LOVES that chart pattern for bullishness!

Hope that helps!

P :)


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