Some of the best trade setups are stocks on the verge of a breakout, with a gap to fill.
For example, maybe the stock gapped down hard a few months ago, now it’s ready to rally back to the fall-off point.
These 2 stocks are ready.
Takeoff incoming…
Stock charts aren’t random volatility.
Past price action shows us key levels to build smart entries. It also shows us where a stock could spike to and whether it can keep going.
Once you learn to read these charts, the most obvious setups start to lunge off the screen at you…
The charts for today’s stocks show an obvious gap to fill.
Study these setups and get ready for smart entries.
Support and Resistance
Every candle on every stock chart marks a specific decision…
- Someone bought.
- Someone sold.
And traders remember the price where they made those decisions.
These price levels fall into one of two categories…
Support sits below the current price. It’s the floor where buyers stepped in before and turned the stock around. When prices slide back to that level, those same buyers tend to defend again.
Resistance sits above the current price. It’s the ceiling where sellers took control and capped the rally. When the price climbs back to it, the sellers reappear. Oftentimes, they’re the traders who bought too high and want out at break-even.
The levels that carry the most weight share a few traits. Round numbers ending in 5 or 0, prior highs and prior lows, and spots the price has tested more than once.
The more times a level holds, the more important it is.
A gap is when the price skips a stretch of those levels in one violent move.
For example, maybe earnings hit after the close and the stock opens the next day far above or below the previous close. That’s when a pocket of air opens on the chart.
Very few shares changed hands in that zone. Making it a sort of “no-man’s land”.
And when a stock reaches the edge of no-man’s land, it tends to fill the gap to the other edge.
We can take advantage of that move.
Lyft Climbs Back Toward Its Gap
Lyft, Inc. (NASDAQ: LYFT) is down 27% on the year.
The damage traces back to one night in particular. Lyft reported fourth-quarter results after the close on February 10, posted a revenue miss and an operating loss, and the stock gapped straight down out of the mid-teens.
A robotaxi scare did the rest. Wall Street spent the winter fretting that driverless fleets would eat the ride-hailing model, and LYFT bore that fear more than anyone else.
As a result, the stock fell into a hole and built a base under $14 for months.
Now it’s pressing back toward the scene of the crime.
$15.34 is the first wall overhead. That’s the lower edge of the February gap.
$16.85 sits above it. That’s the top of the gap, the price LYFT fell from on earnings night.
My plan is simple. If LYFT pushes through $15.34 with real strength, it could run to fill the gap toward $16.85.
I’m looking at short-dated June 18, $15 calls when the stock pokes above $14.61.
There’s one catch that we need to pay attention to.
Every trader who bought LYFT in the high teens and twenties before the drop sits underwater right now. As the stock climbs back into the gap, those holders finally get their shot to sell at break-even.
That selling could act as a lid on the high side. It caps how far the bounce can run.
LYFT can fill the gap, but then it runs straight into a crowd of motivated sellers.
PURR With Blue Sky Above
Hyperliquid Strategies Inc. (NASDAQ: PURR) tells an opposite, but similar story.
PURR is a digital asset treasury company that buys HYPE tokens, and the stock has ripped 70% over the past three months.
It climbed from around $6 per share in March to an all-time high of $11.62 on June 1, then cooled off. Now it’s trading around $10.
This isn’t a wounded stock that’s crawling back to break even, like LYFT. It’s a momentum name catching its breath near the top.
$10.98 is the first level to reclaim. Those are the most recent highs.
The gap to fill is back to $11.62, the all-time high.
I’m looking at July 17, $15 calls when the stock pokes above $11.
The part that separates PURR from LYFT lies above the all-time highs. There’s no prior price action above it. No bag holders waiting to dump at break-even. If the stock clears the $11.62 high, it runs out of resistance. There’s blue sky above.
PURR’s upside isn’t capped the way LYFT’s is.
Both setups are valid. But they carry different sentiments and different ceilings.
Two Charts, One Process
Past price action is the map we need to find these setups and trade them effectively.
LYFT has to fill its gap with a crowd of sellers stacked overhead, so I’ll treat the bounce as a defined move with a clear lid.
PURR only has to clear its highs, and the space above it sits empty. That run could stretch much further.
I’m not predicting which one fires first. I’m reading the levels and waiting for the stock to show its hand.
React. Don’t predict.
Study these setups, set your alerts, and get ready for the next one.
Be good (and be good to others),
Ben Sturgill
*Past performance does not indicate future results. Not typical.
