Trading the Panic and Minding the Gap
If you buy weakness and sell strength, then a gap down opening is often the signature opportunity for your trading style. To the extent that gap downs so often reflect a “shoot first answer questions later,” panic reaction on the part of market participants, it is little surprise that veteran traders and money managers like Kevin Haggerty have been quoted admitting that if they were allowed to trade only one style, that style would be early morning gaps.
With most of the market anticipating higher prices in stocks based on Apple’s strong earnings report and afterhours surge higher, traders and active investors looking for new opportunities and new weakness for potential trades may want to consider a pair of stocks, The Lorillard Group (NYSE: LO) and GlaxoSmithKline (NYSE: GSK) that are not just moving in the opposit direction of stocks like Apple right now, but are doing so with sharp gap sell-offs immediately after the opening bell.
After closing lower for two days in a row, sellers took shares of The Lorillard Group down hard. The stock gapped down on the open by more than 6%, dropping not just to new, two-week lows, but to LO’s lowest level since mid-February. Buyers managed to bring shares off their lowest levels by midday on Wednesday. But the selling on the open – and the selling in the days leading up to Wednesday’s gap down open – has still created significantly oversold conditions in the market for shares of The Lorillard Group.
LO has earned a ratings upgrade intraday to climb within one point of our “consider buying” category. This, combined with the stock’s positive edge of nearly one and half percent, is likely to keep buyers interested in Lorillard Group in the near term.
Also making a major move lower on the opening on Wednesday were shares of GlaxoSmithKline. Shares of GSK have a short-term positive edge of just under three-quarters of a percent and like The Lorillard Group above have earned a one-point ratings upgrade intraday. This comes after the stock gapped down nearly 3% on the open Wednesday morning, taking GSK into technically oversold territory since early in the month.
Buyers have begun to move back into both The Lorillard Group and Glaxosmithkline, with both stocks finishing near session highs on Wednesday. That said, both LO and GSK remain set to open short-term oversold when trading begins Thursday morning.
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David Penn is Editor in Chief of TradingMarkets.com