Opt to buy on ‘down days’

Jargon Warning Ahead:

A short-term observation in selected equities recommends prudence not to chase momentum and ‘spikes’ when trading days which resemble ‘bounces’ and ‘relief rallies’.

When stocks, indices or commodities ‘gap-up’, there is a high probability that prices trade lower relatively soon to ‘back and fill’ those gaps or spaces in the charts.

My experience suggest that ‘Gap ups’ are often honoured and ‘closed’ in the nearer term when volatility is running above average.

A simple example is that on Friday June 17, 2022, Apple saw an intra-day high of $133.08. The next day (Monday) it opened higher and throughout that day its low was $133.32. There is a 24 cents gap in that price chart.

Then, a few days later (on Wednesday Juen 23rd) its high was $138.59. The following day, the stock price opens higher from the previous days close (gaps-up) and its intra-day low was $139.77.

There is another gap in the chart.

These should be ‘backed and filled’.

In other words, if you are a buyer of Apple stock (this is not a research recommendation), you shouldn’t chase it at today’s $143 high but instead wait for those gaps to be filled and be patient at $133.10.

So, my preference is to accumulate on days when prices are falling, rather than chasing the momentum of the herd.

June 27, 2022

by Rob Zdravevski

rob@karriasset.com.au