Tuesday, July 15, 2008

What Happens After Gaps Up Fail

It was another tough day for the bulls. Large gaps up in downtrends tend to provide an edge to the upside. My thought going into the day was that the large gap may cause a short-covering panic that would lead to a nice trend day higher. It didn’t come close as the market dropped right from the first few minutes.

Reversals like this always look ugly, but I thought I’d take a little closer look.

Using the SPY I checked all other times there was a gap up of over 1% and then a close at a 200-day low. Today was the first. So I loosened some parameters.

A choppy beginning but once you get out a few weeks things look very good. An average trade of over 5% in the next 4 weeks is impressive. Of course the number of instances is extremely small. So I lowered the gap requirement to 0.5%:


Nothing mind-blowing but over the next 1-2 weeks it showed a decent upside edge. Of course there has been a multitude of reasons the market should bounce for a while now.

5 comments:

Jeff Pietsch CFA, Esq said...

A multitude of technical reasons, but seemingly no catalyst and more negative news flow. As Pisani said, we are sure to bounce of zero soon enough! ;)

Anonymous said...

An oversold indicator I've been waiting for could trigger today. Brett Steenbarger posted this indicator, based on the equity put/call ratio, back in December.

http://traderfeed.blogspot.com/2007/12/spikes-in-equity-putcall-ratio-signal.html

This indicator has kept me from taking an intermediate term bullish position. I might start that position today.

Brian

Dave M. said...

anon said.."An oversold indicator I've been waiting for could trigger today. Brett Steenbarger posted this indicator, based on the equity put/call ratio, back in December.""

I don't think the CBOE equity put/call ratio is showing this Steenbarger indicator. Is there more than one put/call ratio?

Anonymous said...

dave m., today the equity put/call ratio 5 day MA closed the day 19.18% higher than the 50 day MA. Very close but no signal yet. Here's a link to the chart.

http://tinyurl.com/6glxat

Brian

dave m. said...

thanks brian for that chart!