Great question. We have stated more than once we do not like gaps higher as they are more of a crapshoot. Early enthusiasm tends to wear off, and a gap higher can come right back on you. Unless the market is still in good position to rally further and the stock is in a strong pattern as well, we typically do not like to move in on a gap higher. Too many times stocks gap and then turn over. This is particularly the case when we see action as we have this week, i.e., stocks opening strong but then turning back and giving the gains away later in the session. If we see that action we will tend to stay away from gaps higher and wait to see how the stock closed on the session. ASPM managed to hold the gap higher, but it was selling back all session. That is not one you want to venture into.
If the market is not extended and a stock makes a break from a good pattern, gapping higher on some news or just a lot of buyside interest (that happens when the sellers are shaken out and insitutions want into stock) we sometimes jump in, but if it is a big gap a stock will usually come back to test the prior session high, the close, or the gap up point. If any of those hold and volume is tracking well, we will start a position. Not a full position, but a partial. Then we will see if it performs. If it does we will look for the next buying opportunity, e.g., a test of the breakout move, to complete the position.