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GAPS


Corning Filling Gaps

01/25/13 09:22:41 AM
by Chaitali Mohile

Gaps have offered strong support-resistances to Corning Inc. The stock is likely to fill a big gap up.

Security:   GLW
Position:   Hold

Corning Inc (GLW) has been undergoing highly volatile trading sessions. A robust long-term downtrend has induced huge bearish pressure, suspending a small upward rally in GLW. As a result, the stock failed to establish support above the 200-day moving average (MA) resistance.

GLW formed a small gap down while plunging the MA support. This descending rally paused near 10.75 levels and initiated a pullback rally. After travelling a few points, GLW took a huge jump from 11.25 levels to 12 levels. This rally surged above the 200-day MA and the previous gap down resistance. Gaps provide strong support-resistance zones for stocks and indexes.

FIGURE 1: GLW, DAILY
Graphic provided by: StockCharts.com.
 
The pullback filled the previous gap down and immediately moved sideways with the support of 200-day MA. The gaps that are formed get filled at some time or another. The support-resistances of the gap are observed as important pivots. We can see in Figure 1 that GLW has marginally declined below the two moving averages and is resting at the previous gap support.

The full stochastic (14,3,3) is sustaining above the 20 levels. The negative moving average convergence/divergence (MACD) (12,26,9) is ready to slip in negative territory inducing bearish momentum, and the average directional index (ADX) (14) is developing a fresh downtrend for GLW. The increasing bearish pressure is likely to drag the stochastic oscillator in an oversold zone below 20 levels. These conditions indicate that the second gap (the blank yellow box) is likely to get filled soon.

FIGURE 2: GLW, WEEKLY
Graphic provided by: StockCharts.com.
 
In the past few months, GLW rallied below the 200-day MA resistance, forming a descending channel. Currently, the stock is plunging from the upper resistance trendline toward the lower trendline support. The stock has been moving within the channels, so the forthcoming downside move will respect the support line. The ADX (14) is indicating weakness in the stock, the stochastic oscillator is ready to breach the center line (50 level), and the ascending MACD (12,26,9) is indicating high volatility in the stock.

Due to the weak indicators, GLW would continue its bearish journey. The zigzagging price action within the channel would fill the pockets of the traders with a short position. The upward price movement with the lower trendline support can be considered for a short-term short position and not as a buying opportunity. The weekly chart in Figure 2 is completely bearish and suggests more downside for GLW.


Thus, the previous gap up formed in Figure 1 would get filled. Although the support generated by the gap would slow down the descending price, the selling pressure would pull GLW toward the previous low at 10.75 levels.

This article is an example of the gap-filling process, which is an important action in all kinds of market conditions. We can easily identify the potential support-resistance of the rally if a gap is formed in a particular stock or index.




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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