I am always fascinated with the reactions to news and earning reports.
Newspapers and magazines like the Wall Street Journal, Barron’s and Investor
’s Business Daily can move markets. The earnings of companies include
Whisper Numbers and The Whisper Numbers of companies can really move a stock
to unsustainable prices.
The last one in, or those who just emotionally Buy a stock on news, can be
hurt. This is true when there are a flood of market orders at the open.
The specialist, or Market Makers, will intentional open the stock extra high
to bring in sellers. These Market Makers have to take the other side of
these market open trades and want to be sure they can Buy the stock back
cheaper.
Let’s look at Amazon.com Inc. (NASDAQ: AMZN).
The other day, brokerage firms praised Amazon's move to a French website.
The market had Amazon gap up from a close of 39 5/8 to 42 3/8.
On Wednesday, the stock closed basically unchanged from the gap.
Today, August 31, 2000, there was weakness in Amazon despite a large rise in
the general market and end of month window dressing.
Was the move on Wednesday an example of an exhaustion gap?
Amazon was up from a low of 27 7/8 on July 31.
Volume was high Wednesday for Amazon.
All these factors are setting up for a possible reversal and an example of an
exhaustion gap.
If Amazon opens down in the morning, I would exit any longs.
An aggressive trader may also want to short Amazon.
If Amazon is shorted, I would place a close stop at 42 �.
The stock should open down and continue moving down. If it gets back to 42
�, then it is not an exhaustion gap reversal move.
