Monday, June 21, 2010

A Large Gap Up From A High Level

Looks like there is going to be a sizable gap up this morning. I've shown before how large gaps up from 10 and 20-day highs in the SPY often lead to an intraday selloff. While the SPX closed at a 20-day high on Friday, the SPY and the futures were down slightly.

SPY closed down a little rather than up a little because it went ex-div. Rather than looking at 10-day highs I looked at closes in the top 10% of the 10-day range. A slightly different twist. (Note that the SPY missed qualifying for this by a few pennies as well thanks to the dividend. Still, I felt the current situation represented the spirit of the setup.)

Rather than a stats table, I've listed below all 11 instances since 2003.

10 of 11 instances saw declines from open to close. The far right column is even more interesting. In only 1 case did the max intraday runup from the opening price exceed 1% (3/16/09). In contrast, 9 of 11 exceeded a 1% pullback, and all 11 exceeded a 0.8% pullback. This all suggests to me that intraday risk/reward is skewed to the downside today.


Anonymous said...

Very clear, very definitive, very helpful.

Thanks for posts like this.

procol said...

Interesting study. Too bad I'm reading this at 10:50pm.

Sharpe Trader said...

Nice call, Rob