Science of Stock Price Action:
When a stock opens with a Gap-up, then few weeks/months down the road, the stock does pull back to fill that Gap and the base of the Gap becomes a strong support level.
When multiple support converges around a level, then bulls get enormous confidence to take the stock higher.
Here's Alibaba Group stock BABA in such a situation right now
As you can see in the chart above: BABA stock opened with a huge Gap back in August 2016. Now it has filled the gap. The Gap filling level also converges with Horizontal support level and 200 dma. Does this mean - BABA stock is a buy at current levels. Technically, the answer is YES.
In the market, there is no guarantee. If BABA stock slips below 85.5 - then there will be a rush to exit and the pattern will fail.
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Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers