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GAPS


Gap Up Crossed Major Resistance In HUBG

05/11/07 12:53:59 PM
by Chaitali Mohile

The moving average and the previous high pivot were violated by a sudden gap up in Hub Group.

Security:   HUBG
Position:   Buy

Dealing with gaps is tricky. Usually, gaps are traded either after consolidation or when the price retraces to its previous low pivot after the gap up. Hub Group (HUBG) gave a sudden gap up in mid-April. Figure 1 shows a 50-period moving average and a previous high pivot was left behind with this gap up. These two resistances can reverse the bullish rally. With a gap up, the price traveled from $34 to $36 in a day; such moves are difficult to catch. The stock then consolidated in a smaller range of $36–$37. This indicates that the gap that occurred in mid-April still offer buying opportunities.

FIGURE 1: HUBG, DAILY. This chart shows that a 50-day moving average and previous high pivot was left behind with this gap up.
Graphic provided by: StockCharts.com.
 
The relative strength index (RSI)(14) shows the overall bullish strength of the stock. The RSI recovered faster every time it moved below 50. The gap in the price made the RSI moved above 70. Though in the overbought zone, the RSI has enough space for a bullish rally ahead. The moving average convergence/divergence (MACD)(12, 26, 9) with its bullish crossover remained above its trigger line. Therefore, the positive MACD also gives a buying indication in this stock.

Traders already long on this stock can continue holding with a stop-loss at $35. A fresh long position is possible at any level above $37, with a target of $40. This fresh level of $4 is measured on the previous rally from $34 to $37, so by adding 3 to 37, traders can see the target of $40. With this attractive target I would recommend fresh buying for traders and investors.

FIGURE 2: HUBG, WEEKLY. This chart also gives positive indication for fresh buying.
Graphic provided by: StockCharts.com.
 
The relative strength index (RSI)(14) in the weekly chart (Figure 2) moved above 70 with a sudden change in price. The price moved above its previous high on heavy volume. Such breakout is always reliable. The MACD (12, 26, 9) gave a bullish crossover. Figure 2 also gives a positive indication for fresh buying.

A gap up crossed major resistance on the daily and also on the weekly time frame. Though the gap up happened last month, the consolidation offered a low-risk entry at current level. Thus, the perfect trading opportunity on a gap up should be captured with target of $40.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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