Exploiting The Gap
Players of the gap-down short may have
an opportunity coming up in Corning. The world’s biggest maker of fiber-optic
cable gapped down Thursday after beating Q4 estimates but warning of a soft
market in Q1.
Overnight, Corning
(
GLW |
Quote |
Chart |
News |
PowerRating) posted
pro forma profits of 34 cents a share in the fourth quarter vs. 18 cents a
year ago and trouncing estimates averaging 28 cents, according to research firm
First Call/Thomson Financial. However, the company warned that the telecom
market may face a slowdown in equipment spending by carriers hurt by tightening
capital markets. Corning widened its Q1 earnings guidance to a range of 28 cents
to 31 cents a share vs. a previous range of 29 to 30 cents.
As
you can in the above chart, the stock had managed to pull above a downtrend line
defined by the Oct. 20 and Dec. 11 highs, then collapsed below the line
Thursday. The stock tumbled 13 7/8 to 56 1/4 on volume of 47.1 million shares,
four times its usual trade. The means massive abandonment by the institutions.
The close near the bottom of an expanded range also bodes bearish for the stock.
For
lessons on how shorts exploit such moves, see my lesson on shorting
down gaps and Gary Kaltbaum’s lesson on gap
trading strategies. Â
The top field of all charts in this
commentary uses a logarithmic price scale and displays a 50-day price average in
red. In the second field, a
blue relative strength line represents the displayed security’s price
performance relative to the S&P 500. Some charts also display a 200-day
moving price average in black. The third field displays vertical daily
volume bars in black with a 50-day moving average in blue for volume.
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
check out the Money
Management area of TradingMarkets’ Stocks Education section.