Info!! Large Opening Gaps To The Upside: What Comes Next?

Do gaps tend to fill, or create nosotros tend to encounter follow through inward toll movement when the stock marketplace opens higher or lower from its previous day's close?

I went dorsum to 2005 (N = 1093 trading days) in addition to measured the opening gap inward the S&P 500 Index (SPY) every bit a component division of the prior 20-day average trading range. We tin telephone band this the "relative gap", because we're mensuration the size of the gap every bit adjusted for the volatility of the marketplace trading at that time.

I decided to investigate relative gap rather than absolute gap, given my prior findings that absolute gap size on an upside opened upwardly was non especially predictive of markets going forward.

When the opening gap was .50% or greater (i.e., when the deviation betwixt the market's opened upwardly in addition to its prior unopen was one-half or to a greater extent than of the average daily trading arrive at in addition to the gap was to the upside), the displace from that opened upwardly to the marketplace unopen averaged a gain of .47% (47 instances up, 27 down). Interestingly, yesteryear the *following* day's close, that border had evaporated, every bit the market's average gain eroded to .11% (39 instances up, 35 down).

(Note: We would take away to encounter an opening gap of unopen to 1.15% to jibe to the inward a higher house measure inward today's market).

When the opening upside gap occurred next a downward 24-hour interval inward SPY, the average displace from that opened upwardly to the day's unopen averaged a gain of .68% (27 up, fifteen down). When the potent opening gap followed an upwardly 24-hour interval inward SPY, the average displace from opened upwardly to unopen averaged a gain of entirely .19% (20 up, 12 down).

This is a subject I'll hold upwardly touching upon inward hereafter posts: the expectations next a given day's activeness depends inward component division upon the context--the prior designing of activity--in which the 24-hour interval is situated. Influenza A virus subtype H5N1 potent marketplace that follows pull may accept unlike expectations than a potent marketplace that follows weakness.

It may hold upwardly to a greater extent than helpful to sentiment gap relative to electrical flow volatility than inward absolute betoken or percent terms.
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