Strange Gap Fills and Traps in UBS

Feb 10, 2009: 12:11 PM CST

I wanted to show a quick post on the recent price activity in UBS, specifically showing two overnight gaps that were unlikely to fill that actually did fill which was then followed by a nasty bull trap.  Let these serve as interesting lessons.

UBS 15-min chart:

UBS

Don’t so much worry about the technical structure as I’m trying to highlight two gap fills and then a ‘false break’ or bull trap.

UBS reported worse than expected earnings on February 5th which resulted in a large overnight gap and negative sentiment… all of which was destroyed as buyers stepped up and drove price back to fill the gap in a destructive day to the bears and those who thought it was as simple as “Company reports bad earnings… go short.”  It’s these unexpected events that teach us that money/risk management is key – and not to rely too much on simplistic expectations.

However, one should not have said “Hmm.  Stock rallies on bad news. Bullish.  Buy.” because the next morning took price right back down to where the gap opened on Thursday.  And again to the surprise of the sellers, the gap was filled by the end of the day.  Shocking!

I wanted to pull you inside Friday, February 6th’s price action to highlight the classic “AB = CD” Measured Move pattern that completed perfectly mid-day.  It’s similar to a Bull Flag – which is the easiest way to describe it.  Measure price swing A B (A is the low and B is the high – this is not Elliott Wave) and then once price encounters support around the 50 or 61.8% Fibonacci retracement of the AB Swing, then project upwards an equal swing (the low is C and the high – or target – is D).  Afterwards, one might consider shorting at point D because that was the completion of a measured move price target.

Finally, I wanted to highlight the end of Monday’s action, where price surged to a new swing high, breaking above key resistance (and consolidation) as buyers entered with high hopes… that were quickly crushed in 30 minutes of unexpected pain.

Price broke support from the consolidation, drawing in sellers at the end of trading… however Tuesday’s action gave us another large-scale gap, opening at $11.90 (yes, that is ABOVE the falling 20 SMA) which shocked the shorts, drew in buyers before … guess what … plunging on the day.  As I write this at noon, EST, the stock has fallen from its intraday peak of $12.30 down to $11.40.

My advice?

Trade stocks with simpler price structures.  Avoid stocks that are too full of traps.

Corey Rosenbloom
Afraid to Trade.com

2 Comments

2 Responses to “Strange Gap Fills and Traps in UBS”

  1. Anonymous Says:

    I don’t suppose the huge selloff had anything to do with UBS going down today would it? Technicals should not be used independently.

  2. Corey Rosenbloom Says:

    My point is that UBS intraday has been whipping both bulls & bears whether you use fundamentals or technicals. It’s not even about UBS – it’s about making trading easier if at all possible.