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Storm Ridge · Camp 4 · Great Rift

Earnings and gaps

At the end of the ridge the rock splits in two, and the only way across the rift is to jump. Charts open rifts like this too: news that arrives while the market is closed carries price somewhere else entirely by the next open. Here you'll learn to read company earnings and price gaps.

The camp's rules

  1. 01

    A gap is when a candle opens well away from the previous candle's close. It leaves a rift where nothing traded.

  2. 02

    Gaps are usually born from news that arrives while the market is closed: earnings released after the close, or something that happens over the weekend.

  3. 03

    Companies report earnings every quarter: profit, revenue and their guidance for the next period. Earnings from big tech companies shake the Nasdaq too.

  4. 04

    With earnings, too, the surprise is what moves price. A company's guidance usually moves it more than last quarter's numbers.

  5. 05

    A gap either fills or starts a new move. The first hour's structure tells you which: price that holds at the edge of the gap wants to keep going; price that slips back into the gap with lower highs is heading to fill it.

  6. 06

    Chasing the open is the same as chasing a news candle: read the first hour's structure before anything else.

Teaching

The gap

A gap is when a candle opens well away from the previous candle's close. A rift is left in between where nothing traded.

With stocks, the regular session closes every day: news that comes after the close leaves a gap at the next open. Forex and gold close for the weekend, so a gap can show up at the week's open.

A gap has two edges: the previous close and the new open. Both become levels for the hours that follow.

Bora · Weather watcher

Three numbers in an earnings report

Companies report earnings every quarter. Three things matter: profit, revenue, and the company's guidance for the next period.

Each number has a forecast, and here too, the surprise is what moves price.

The market looks ahead: guidance usually moves price more than last quarter's numbers. A strong profit can get overshadowed by weak guidance.

Earnings from the Nasdaq's biggest companies shake the whole index too.

Nevin · Telegraph operator

Lessons · 4

  1. Story

    Great Rift

    See why price sometimes jumps from one place to another.

  2. Lesson

    A rift in the price

    Recognize a gap and read its edges as levels.

  3. Lesson

    Earnings day

    Read the earnings surprise and the gap's first hour.

  4. Exam

    Storm Ridge exam

    From the calendar to gaps: read every storm on the ridge in one exam.

Test yourself

Why do gaps usually show up at the open?
  • ✓ News that came while the market was closed gets priced in all at once at the open
  • · Price always rises at the open
  • · Gaps happen at random

While the session is closed, the price on the chart stands still and news piles up. At the open, everything that piled up gets priced into the first candle.

Does a gap always fill?
  • ✓ No: some fill, some start a new move
  • · Yes, every gap fills eventually
  • · Gaps never fill

You don't guess whether a gap will fill; the first hour's structure tells you. We'll look at that tomorrow.