The QIHU short trade/setup posted earlier this morning has so far been a play right out of the technical analysis books. After putting in what may likely prove to be an exhausting gap on Monday, the stock gapped sharply lower today and made a nearly perfect backfill of the gap where prices abruptly reversed this morning (perfectly normal & expected behavior on the initial backfill of the gap) & prices have now moved back to the top of the gap where they have (so far) found resistance. Gaps are like magnets for stock prices, very often being backfilled or tested from above or below.
A resistance zone is defined by horizontal support slightly above the top of the gap where prices might work their way back to before reversing, assuming that this trade pans out. Of course we still need to see prices break solidly below the bottom of the gap in order to confirm that Monday’s gap was indeed a likely exhaustion gap but from a pure risk-reward perspective, QIHU is offering an objective short entry or add-on around current levels with a stop somewhat above yesterday’s highs. 5 minute chart above.