Free Open Access: Gaps Down 5% or More

Each day, TradingMarkets publishes a new list of TradingMarkets Stock Indicators, which are are based upon our latest quantitative research. We will be featuring 1 list per day, free of charge, to help explain the methodologies and to coach new users; these lists highlight trading edges backed by our database of more than 7-million historical simulated trades.

Today's focus list from the indicators is the Gaps Down 5% or More list. These are stocks that gap down by 5% or more and are trading above their 200-day moving average. Our research shows that stocks trading above their 200-day moving average that gap down by more than 5% have shown positive returns, on average, 1-day, 2-days and 1-week later. Historically, these stocks have provided traders with a significant edge.

Here is today's focus list:

The recent rally has significantly narrowed the universe of stocks which are eligible for this list. Were the market selling off or trading choppily, this list would be much longer. Also keep in mind that this is not a trade recommendation, but only an example from a list of our indicators. Always have your own methodologies and trading strategies in place; do not blindly other people's advice.

Let's take a closer look at the only stock on the list:

Theravance, Inc. (THRX | Quote | Chart | News | PowerRating)

THRX is trading just above its 200-day moving average, which is a very important level to be watching. On Monday, THRX gapped down 5.9%. However, notice that THRX actually gained on the day, trading higher than the previous close, despite a massive gap lower. After an extremely weak opening, there were buyers in the market for this stock; a stock trading above its 200-day moving average will technically always be considered a strong stock. The TradingMarkets mantra is to "buy weakness, and sell strength," because our database of millions of trades repeatedly shows that the edge exists when a strong stock is showing weakness.

Check out our latest quantified research articles here. If you don't already have a TradingMarkets subscription, click here for a free 7-day trial. Check back daily for 7 Trading Ideas for Today, and develop your own watchlist of stocks with historically-backed edges.

John Lee
Associate Editor
johnl@tradingmarkets.com

Reminder: We are in no way recommending the purchase or short sale of these stocks. This article is intended for education purposes only. Trading should be based on your own understanding of market conditions, price patterns and risk; our information is designed to contribute to your understanding.