Initially, when I saw the gap down on YELP, I thought this stock looked good to short for a near-term gain. I usually concentrate on the weekly and daily timeframes and, with the gap down breaking through previous support, the $50 half figure and with higher volume, this looked like a great shorting opportunity - as there appeared to be no further support for some time.
But a quick glance at the monthly chart showed a gap up in 2013 - at the same level YELP is trading right now. If this is an island reversal pattern then we should continue to see price fall - as analysis from the daily timeframe suggests.
But, as I was considering YELP as a near-term opportunity, price could drop too fast - possibly gapping down again past the lower value of the 2013 gap up ($42.84). This means I may not get a position filled at the price I want.
The safer option here is to wait for price to trade below $42.84. If this is indeed a reversal island then price should continue its bearish move down beyond this point.
But a quick glance at the monthly chart showed a gap up in 2013 - at the same level YELP is trading right now. If this is an island reversal pattern then we should continue to see price fall - as analysis from the daily timeframe suggests.
But, as I was considering YELP as a near-term opportunity, price could drop too fast - possibly gapping down again past the lower value of the 2013 gap up ($42.84). This means I may not get a position filled at the price I want.
The safer option here is to wait for price to trade below $42.84. If this is indeed a reversal island then price should continue its bearish move down beyond this point.