Wednesday, October 13, 2010

Modest Gaps Higher From High Levels

I've shown several times before that when the market is already at a high level and it gaps up large in the mornining there is a quantifiable downside edge for the rest of the day.  The large gap up incites profit taking.  See the link below for an example:

http://quantifiableedges.blogspot.com/2009/08/large-gaps-up-from-1-month-high.html

But what of times like now when the makret is at a new high, but the gap up is only modest?  Below is one way to look at it.


It appears when the gap up is of a moderate size a downside edge no longer exists.  And while a large gap up would have had me excited about shorting this morning, this study suggests no substantial edge at all. 

1 comment:

Daniel said...

You put the Q in quantitative sir.

"How to define reality", writer G.Bateson once asked; his answer-- "draw a distinction."

Another excellent and helpful analysis.