Here's Another Way To Trade An Opening Reversal

When a stock is "acting up" against its sector, it could be time to consider a different kind of Opening Reversal. Most people associate an "OR" with stocks that will trigger contra to the early morning gap as it trades through its opening range and back into the gap. This type of action typically happens during the first 40 minutes of trade. But, the opening reversal can also be used as a continuation pattern if you know what to look for.

In the case below, Rambus was up on the day, bucking the semiconductor HOLDRs (SMH | Quote | Chart | News | PowerRating), which were being weighted down on news out of Maxim Integrated (MXIM | Quote | Chart | News | PowerRating). Since during the first few "bars" of trade, it is difficult to discern an actual pattern, unless there's one continuing from yesterday's trade, I like to use the consolidations that define Opening Reversals as a way to enter a stock in the direction of the gap when I see technical evidence in "support" of the stocks early action.

Of course, if a stock continues to act up, you can always use the tried-and-true Slim Jim, or his cousin of consolidation, the infamous Triangle.

Chris Tyler