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Playing the ABC Gap Fill for Swing Trading Entry

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Take a look at Michael Kors' stock for a good example of an ABC gap fill pattern.

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One of my firm's favorite "crowd behavioral" patterns is the ABC gap fill pattern. This is a normal correction pattern in the stock market that works off overbought sentiment. You can apply this to liquid individual stocks in most cases, and look ahead to spot potential entries on your watch list for trading.

A sample we will use today is the fast-growth stock of the leading luxury retailer Michael Kors (NYSE:KORS). Several days in advance, we suggested watching for a gap fill at $57 on this stock before entering a long trade. We also spotted what looked like a classic C wave pattern coming down from a B wave interim top.

Sure enough, it took several days but the stock worked its way down to $57 and hit the gap on the nose on February 26. It immediately reversed to end the day $2.25 higher, or with about 4-5% swing gains on this pattern. The chart below shows a 1, 2, 3, and 4 pattern with ABC making up the 4 pattern on KORS stock.


Click to enlarge

Twitter: @activetrading

Editor's Note: David Banister is the chief investment strategist and co-founder of ActiveTradingPartners.com, a small-cap portfolio and market advisory service.

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No positions in stocks mentioned.

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