Invest and Trade Profitably with Jon Johnson

I would like to know if you still consider a stock a buy if you miss the buy point on a gap up but the stock pulls back to the point during the day.

August 30, 2000

From your question I assume the point the stock pulls back to is the buy point. There is a reason we picked the buy point; usually it represents a break over resistance. When resistance is broken it is ‘soft’ support, i.e., it should hold as support on a test lower. It does not become ‘hard’ support until it is tested and the test holds. When stocks build pressure to breakout, often it gaps over the resistance and the buy point. That is good, strong action. If it comes back to test that level and it holds, that resistance that was broken is becoming hard support. The early sellers are gone, buyers have moved back in, and the stock starts to head back up. Thus, the test of the breakout after the gap over that level, as long as it holds, it a good sign and a good entry point.

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