Fade a Second Gap Up Open? History says Yes
By
Rennie on Wednesday, April 20th, 2011 at 7:09 pm
S&P futures gapped up sharply Wednesday, over 1% above Tuesday’s high, and traded in a tight range for the remainder of the session. After hours, strong earnings from Apple has sent the S&P sharply higher again, with the June contract currently up about 7. I thought it would be instructive to look back at previous intances when a similar price pattern occurred… an unfilled upside gap (low > previous day’s high) followed by an open above the previous day’s high (setting up another potential unfilled upside gap). My primary focus was to see how often the S&Ps actually posted a second consecutive unfilled upside gap. The answer is not very often. The dates in the table below represent the date of the open above the previous day’s high (following an unfilled upside gap). You can see that in most cases the second gap was quickly filled, usually the same day…
S&P Futures Open > Prev Day’s High Following Unfilled Upside Gap
03/02/10… Gap not filled within next two days
12/28/09… Gap filled same day
09/09/09… Gap filled same day
08/24/09… Gap filled same day
11/25/08… Gap filled same day
04/02/08… Gap filled same day
03/19/08… Gap filled same day
12/24/07… Gap filled two days later
04/17/07… Gap filled same day
06/30/06… Gap filled same day
11/18/05… Gap filled same day
02/01/05… Gap filled same day
10/04/04… Gap filled next day
04/03/03… Gap filled same day
03/14/03… Gap filled same day
11/14/01… Gap filled same day
04/11/01… Gap filled same day
12/27/99… Gap filled same day
10/29/99… Gap filled two days later
07/16/99… Gap filled same day
11/02/98… Gap filled same day
08/19/98… Gap filled same day
01/14/98… Gap filled same day
11/21/97… Gap filled same day
07/07/97… Gap filled same day
12/27/96… Gap filled same day
12/20/96… Gap filled next day
09/13/96… Gap not filled within next two days
04/16/96… Gap filled same day
03/19/96… Gap filled same day
02/23/96… Gap filled same day
10/31/95… Gap filled same day
05/04/95… Gap filled same day
04/06/94… Gap filled same day
01/31/94… Gap filled same day
08/22/91… Gap filled same day
10/02/90… Gap filled same day
Out of 37 occurrences since 1990, 35 (95%) saw the gap filled within two days. 31 out of 37 (84%) saw the gap filled the same day. ‘Gap filled’ means price touched the previous day’s high. For Thursday, assuming we open above today’s high of SPM 1330.20, a gap fill would mean a move down to 1330.20.
Also interesting to note that the NYSE TICK did not trade below -900 for a second consecutive session. A complete absence of selling pressure two days in a row usually means buying power is temporarily exhausted, translating into limited upside potential the next session. Every occurrence over the last few years is listed in the table below. Note that only 3 out of 45 occurrences led to an S&P close up more than 0.6% the next day…
NYSE TICK Does Not Trade Below -900 Two Consecutive Sessions
04/20/11… S&P500 ??? next day
02/18/11… S&P500 -2.1% next day
02/15/11… S&P500 +0.6% next day
02/02/11… S&P500 +0.2% next day
12/31/10… S&P500 +1.1% next day (*)
12/30/10… S&P500 -0.0% next day
12/29/10… S&P500 -0.2% next day
12/28/10… S&P500 +0.1% next day
12/27/10… S&P500 +0.1% next day
12/23/10… S&P500 +0.1% next day
12/22/10… S&P500 -0.2% next day
12/06/10… S&P500 +0.1% next day
12/03/10… S&P500 -0.1% next day
11/26/10… S&P500 -0.1% next day
04/15/10… S&P500 -1.6% next day
04/06/10… S&P500 -0.6% next day
03/08/10… S&P500 +0.2% next day
03/05/10… S&P500 -0.0% next day
01/14/10… S&P500 -1.1% next day
01/11/10… S&P500 -0.9% next day
01/06/10… S&P500 +0.4% next day
01/05/10… S&P500 +0.1% next day
12/29/09… S&P500 +0.0% next day
12/28/09… S&P500 -0.1% next day
12/24/09… S&P500 +0.1% next day
12/23/09… S&P500 +0.5% next day
08/21/09… S&P500 -0.1% next day
08/03/09… S&P500 +0.3% next day
07/27/09… S&P500 -0.3% next day
01/06/09… S&P500 -3.0% next day
01/05/09… S&P500 +0.8% next day (*)
01/02/09… S&P500 -0.5% next day
12/31/08… S&P500 +3.2% next day (*)
12/26/08… S&P500 -0.4% next day
11/28/08… S&P500 -8.9% next day
10/01/08… S&P500 -4.0% next day
08/22/08… S&P500 -2.0% next day
08/11/08… S&P500 -1.2% next day
08/06/08… S&P500 -1.8% next day
07/18/08… S&P500 -0.1% next day
07/17/08… S&P500 +0.0% next day
05/13/08… S&P500 +0.4% next day
05/12/08… S&P500 -0.0% next day
12/24/07… S&P500 +0.1% next day
10/05/07… S&P500 -0.3% next day
10/02/07… S&P500 -0.5% next day
S&P futures are currently trading up about 0.5% overnight. Assuming we open in the same vicinity, this study would imply limited upside potential from the opening, supporting the ‘gap fill’ trade idea discussed earlier.
Fade a Second Gap Up Open? History says Yes
By Rennie on Wednesday, April 20th, 2011 at 7:09 pmS&P futures gapped up sharply Wednesday, over 1% above Tuesday’s high, and traded in a tight range for the remainder of the session. After hours, strong earnings from Apple has sent the S&P sharply higher again, with the June contract currently up about 7. I thought it would be instructive to look back at previous intances when a similar price pattern occurred… an unfilled upside gap (low > previous day’s high) followed by an open above the previous day’s high (setting up another potential unfilled upside gap). My primary focus was to see how often the S&Ps actually posted a second consecutive unfilled upside gap. The answer is not very often. The dates in the table below represent the date of the open above the previous day’s high (following an unfilled upside gap). You can see that in most cases the second gap was quickly filled, usually the same day…
S&P Futures Open > Prev Day’s High Following Unfilled Upside Gap
03/02/10… Gap not filled within next two days
12/28/09… Gap filled same day
09/09/09… Gap filled same day
08/24/09… Gap filled same day
11/25/08… Gap filled same day
04/02/08… Gap filled same day
03/19/08… Gap filled same day
12/24/07… Gap filled two days later
04/17/07… Gap filled same day
06/30/06… Gap filled same day
11/18/05… Gap filled same day
02/01/05… Gap filled same day
10/04/04… Gap filled next day
04/03/03… Gap filled same day
03/14/03… Gap filled same day
11/14/01… Gap filled same day
04/11/01… Gap filled same day
12/27/99… Gap filled same day
10/29/99… Gap filled two days later
07/16/99… Gap filled same day
11/02/98… Gap filled same day
08/19/98… Gap filled same day
01/14/98… Gap filled same day
11/21/97… Gap filled same day
07/07/97… Gap filled same day
12/27/96… Gap filled same day
12/20/96… Gap filled next day
09/13/96… Gap not filled within next two days
04/16/96… Gap filled same day
03/19/96… Gap filled same day
02/23/96… Gap filled same day
10/31/95… Gap filled same day
05/04/95… Gap filled same day
04/06/94… Gap filled same day
01/31/94… Gap filled same day
08/22/91… Gap filled same day
10/02/90… Gap filled same day
Out of 37 occurrences since 1990, 35 (95%) saw the gap filled within two days. 31 out of 37 (84%) saw the gap filled the same day. ‘Gap filled’ means price touched the previous day’s high. For Thursday, assuming we open above today’s high of SPM 1330.20, a gap fill would mean a move down to 1330.20.
Also interesting to note that the NYSE TICK did not trade below -900 for a second consecutive session. A complete absence of selling pressure two days in a row usually means buying power is temporarily exhausted, translating into limited upside potential the next session. Every occurrence over the last few years is listed in the table below. Note that only 3 out of 45 occurrences led to an S&P close up more than 0.6% the next day…
NYSE TICK Does Not Trade Below -900 Two Consecutive Sessions
04/20/11… S&P500 ??? next day
02/18/11… S&P500 -2.1% next day
02/15/11… S&P500 +0.6% next day
02/02/11… S&P500 +0.2% next day
12/31/10… S&P500 +1.1% next day (*)
12/30/10… S&P500 -0.0% next day
12/29/10… S&P500 -0.2% next day
12/28/10… S&P500 +0.1% next day
12/27/10… S&P500 +0.1% next day
12/23/10… S&P500 +0.1% next day
12/22/10… S&P500 -0.2% next day
12/06/10… S&P500 +0.1% next day
12/03/10… S&P500 -0.1% next day
11/26/10… S&P500 -0.1% next day
04/15/10… S&P500 -1.6% next day
04/06/10… S&P500 -0.6% next day
03/08/10… S&P500 +0.2% next day
03/05/10… S&P500 -0.0% next day
01/14/10… S&P500 -1.1% next day
01/11/10… S&P500 -0.9% next day
01/06/10… S&P500 +0.4% next day
01/05/10… S&P500 +0.1% next day
12/29/09… S&P500 +0.0% next day
12/28/09… S&P500 -0.1% next day
12/24/09… S&P500 +0.1% next day
12/23/09… S&P500 +0.5% next day
08/21/09… S&P500 -0.1% next day
08/03/09… S&P500 +0.3% next day
07/27/09… S&P500 -0.3% next day
01/06/09… S&P500 -3.0% next day
01/05/09… S&P500 +0.8% next day (*)
01/02/09… S&P500 -0.5% next day
12/31/08… S&P500 +3.2% next day (*)
12/26/08… S&P500 -0.4% next day
11/28/08… S&P500 -8.9% next day
10/01/08… S&P500 -4.0% next day
08/22/08… S&P500 -2.0% next day
08/11/08… S&P500 -1.2% next day
08/06/08… S&P500 -1.8% next day
07/18/08… S&P500 -0.1% next day
07/17/08… S&P500 +0.0% next day
05/13/08… S&P500 +0.4% next day
05/12/08… S&P500 -0.0% next day
12/24/07… S&P500 +0.1% next day
10/05/07… S&P500 -0.3% next day
10/02/07… S&P500 -0.5% next day
S&P futures are currently trading up about 0.5% overnight. Assuming we open in the same vicinity, this study would imply limited upside potential from the opening, supporting the ‘gap fill’ trade idea discussed earlier.