Thursday, August 4, 2011

A Look At This Mornings Gap Probabilities

The gap down this morning is coming after a recovery attempt yesterday. I ran a few tests to see how the day has played out in the past under similar circumstances. The market has been moving around quite a bit this morning so I am showing 2 sets of results below.

The 1st one looks at times the market gapped down at least 1%.

Winners outnumber losers 7-3 but the losers are so much larger on average that the net expectation is about flat.

This next one looks at gaps between 0.5% and 1%.

Here again the odds appear to favor a rise over the course of the day. Losers were a bit larger here as well, but not nearly to the same degree.

Bottom line is that it appears likely the gap down will be bought up during the day, but if it isn’t then this could turn into another huge down day.

1 comment:

Daniel said...

Very nicely nuanced interpretation, Rob. I was keeping both scenarios in my head at several key inflection points during the day, and this slant on things helped clarify the ongoing market movements.

Your work is unique and invaluable.