I’ve seen stocks fill the gap, both up and down.
For instance, I took a trade in FAMI a while back.
Here’s the chart…
After the gap down at the end of April, it made a high at .51 before pulling back and consolidating.
What I liked from there was the move back to the .51 high for a push-through into the gap.
And now I’m eyeing another stock chart that looks very similar…
Specifically, I will talk about what a gap fill is, why it happens, and show you a chart trading near that level.
A gap happens when a stock opens lower than the low or higher than the high from the previous day, creating space between the bars on the chart.
Look at the chart below…
JOB hit a low of .837 and closed at .85 on April 14. It then opened on April 15 at .56, creating a gap down on the chart.
Why does this happen?
A gap is simply an imbalance between buying and selling orders stacked up from when the stock market closed one day and opened the next.
Generally, this imbalance is caused by significant news coming out while the market is closed—this could be earnings that miss or beat expectations, a new product announcement, lawsuit, fraud, etc…
Or, in the case of JOB, the announcement of a public offering for 83M+ shares at .60.
The good news is that stock gaps provide us with great trading opportunities..
And one of my favorite plays on a stock gap is the gap fill—this is when the price of the stock trades back through the gap, closing the space on the chart.
When a gap forms, it’s like a psychological void without any specific support or resistance. So when a stock can break into it, there is the potential to trade through it…also known as filling the gap.
There are no guarantees, of course. The stock gapped for a reason, so it’s not a blind buy and hold here.
Sometimes a stock that gaps down/up and then attempts to retest it… or even trade into it a little… before turning on a dime and continuing down/ up.
It’s just one piece of the puzzle, and that’s why I always use multiple tools when assessing a potential trade.
Currently, GEE Group, Inc. (JOB) is flirting with the gap created back on April 15.
Let’s take a look…
GEE Group, Inc. (JOB)
GEE Group, Inc. (JOB) provides permanent and temporary professional, industrial, and physician assistant staffing and placement services in the United States.
As mentioned earlier, the company announced a public offering of over 83M shares at .60 for $50M in proceeds along with an over allotment of 12M shares at .60 for $7.5M which closed on April 28…
GEE Group used the proceeds to pay off $55,000,000 in aggregate outstanding indebtedness under its existing Revolving Credit, Term Loan and Security Agreement.
While not great for the investors holding shares beforehand… it definitely puts them in a better position going forward.
But there’s always the question as to why they were in such bad shape in the first place. Was it just due to the pandemic or is there an underlying issue with business strategy or management?
I’m not looking to invest long term, so I don’t get too involved with those questions.
I’m really only concerned with what the chart is telling me in the short term.
So let’s take a look at that…
When the company announced the share offering, the stock opened the next day on a gap down to .56… remember the offering price was set to be .60. You wouldn’t want to buy a stock at .85 when they are offering 83M shares at .60 either.
The over allotment closed on April 28 and two days later the stock made a high of .68 before pulling back and consolidating in the .50s.
We haven’t seen the upper .60s again until now…with the high yesterday coming in at .66 and the stock closing at .65.
Looking at the chart, the 50 day MA line is at .70. And as a short term trader, that’s the area I would target as the next resistance…
But to fill the gap completely JOB would need to get up to .85…
Pulling back some today, the stock hasn’t been able to break above the previous high at .68.
I’ll be watching to see if it can hold above the 20 day MA support and the .60 offering price.
Value in the Charts
Something I always find interesting when looking at big moves off an announcement is that the stock often moves ahead of time.
Take a look at the chart for JOB below.
Notice how the stock was tanking for 2 days going into the announcement.
The announcement happened after the close on April 14, which is why the stock gapped down the next day to .60.
So why was the stock tanking so hard before the announcement was made public?
Makes you wonder who all got the news ahead of time and how…
Either way, it happened…and seems to happen a lot, in my opinion.
And that’s why it’s important to read the charts. The charts sometimes show us information we don’t know anything about yet. Don’t fight them.
So will JOB “fill the gap?”
I honestly don’t know, but I like the comparison to FAMI right now.
….creeping up to a previous high breakout into the gap, riding the 20 day MA, with the 50 day MA above…
But ultimately I listen to the charts, so I’ll be watching to see if it Fills or Fails…
At this moment it’s down from yesterday’s close, so I would like to see it hold the 20 day, and hold the .60 offering price as well.
Just think… over 83M shares were registered at .60. If it goes down, those are all underwater.
Something to keep in mind as you watch the stock react at these levels.
Before going out and taking trades on potential gap fill plays… look up gaps every day, track them and watch what happens.
Look for clues and cues in the charts, and soak up all you can. Notice when they fill vs. when it’s best to trade with the gap.
Well, that’s it for me…good luck gang.