AVGO - Runaway and Breakaway Gaps

May 27, 2023

Will the most recent breakaway gap in AVGO follow the trend of the next most recent small runaway gaps in its price trend? Gaps occur when the low price of the current day is higher than the high price of the previous day. The majority of gaps are filled over time, but a sudden gap fill usually indicates a trend reversal. A breakaway gap occurs at the beginning of a trend after a period of consolidation, similar to what we've observed with AVGO between March and May. We can project the outcome after a breakaway gap by measuring the vertical distance from the most recent swing low to the middle of the gap, and then using that same distance from the center of the gap to project the next local top of the trend. Historically, these projections have roughly a 60% likelihood of reaching their target.

Jun 17, 2023

Note

The next couple of weeks will tell us if this was a breakaway gap to start a new uptrend or if it is an exhaustion gap at the end of the trend. If it proves to be a breakaway gap we're likely to consolidate until new information draws buyers back in. In which case, coming back to test support at the 0.382 would be normal.
Exhaustion gaps usually fill within 2-4 weeks and there are some traits of exhaustion here (extreme volume suggesting late comers with less conviction, ADX way above 30 suggesting a volatile movement and not a sustainable trend, demark indicator over 90 suggesting reversal). I'm hesitant to compare it to the gap movement in late 2021 since that was part of an overall market trend. Exhaustion gaps can retrace ~10% from the bottom of the gap and have ~60% chance of reaching their target.

I plan to manage remaining opportunity and risk on this movement as follows:
- set a take profit stop loss ~$830, which is half of an ATR below the 0.236.
- slight reaccumulation at ~$790, ~half an ATR below the 0.382.
- larger stop loss at ~$745, the top of the gap.
- larger reaccumulation between $670-680 if this proves to be an exhaustion gap.