Earnings Gap Ups

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Based on research conducted by John Pocorobba and Jason Thompson, the Earnings Gap Ups Indicator is designed to identify three types of earnings gaps, key levels, and the "alpha window"—a period when stocks often outperform following a gap. These gaps are frequently observed in high-performing stocks.

What is an Earnings Gap?
An earnings gap occurs when a stock's price makes a significant jump, after the company reports earnings signifying the street (institutions) were caught off guard.

The three different types of gaps are as follows:[/b

PEG (Power Earnings Gap)

• Price gain of 10% or more
  
• Volume is greater than 200% above the 50-day average
  
• EPS surprise of at least 20%
  

Monster Gap

• Price gain of 20% or more
  
• Volume is greater than 300% above the 50-day average
  
• No fundamental requirement
  

Monster Peg

• Price Gain of 20% or more
  
• Volume is greater than 300% above the 50-day average
  
• EPS surprise of at least 20%
  

Key Levels and the Alpha Window
In addition to spotting these gaps, the indicator marks key levels on the chart and extends them through the alpha window, which represents the time period when the stock tends to outperform after the gap.

Key levels include:

• High volume close: The closing price on a day with unusually high trading volume
  
• High volume close minus 5%: A potential support level below the high volume close
  
• Gap day high: The highest price reached on the gap day
  
• Gap day low: The lowest price reached on the gap day
  

By understanding and tracking these gaps and levels, traders can map out a playbook for trading earnings gaps.