Well, the bullish surge today above the Island Reversal has opened up yet another yawning gap! – gaps have been filled pronto recently, sometimes the same day........ We’ve hit recent resistance at around the 1935 level and RSI is fully extended, so watching closely……
If a stock gaps up U$ 4 or 5 after a piece of good news and then stays strong for several days after that, would you say that the gap is likely to be filled if the piece of news that caused the gap has now resulted in a truer valuation of the Company's stock price ?
Salty - I guess that the answer to that one is very stock specific, but I’ve noticed that very often a ‘gap up’ on good news is sold into, so that the gap is almost inevitably filled pronto….!
Couldn’t find any that have gapped $4-5, but a couple of examples I’ve noticed recently are JNPR and NTES (charts attached) As part of general day-to-day price/sentiment fluctuations, they seem to create gaps and trade to fill them very quickly….probably typical of most Nasdaq stocks.
Naz or Mr Charts might have some other comments/ examples on stock ‘gap’ syndromes and typical outcomes ….?
Given the discussion on Gaps, I thought I would give you the wisdom I am currently covering on a candlesticks book.
The theory on 'windows' (candlestick speak for gaps) is that closing the window is bearish and should happen on the next stick, but the gap itself is a continuation signal as opposed to a reversal, unless the gap itself is a doji or very small candle which signifies a possible change whereafter the next bar will confirm either a continuation, congestion or reversal. Further to which a window not closed in 5 candles assures a strong trend in the direction of the gap.
This may sound like Greek/Japanese but I found it interesting and often accurate.
The interpretation on the Gap everyone refferred too would be the initial gap is not a doji which is positive however the next bar while down did not extend far enough down to be an engulfing Bear signal suggesting a fall and hinted merely at change which led to some congestion, after 5 bars without closing the window the original move upwards continued, which is pretty much spot on for that period.
Although it has since come down, some have still noted that the gap level is an area of support which is also candlestick theory and appears to hold for now, despite the formation being awhile back.
Massive opening gap, and the price continuation gap from Friday closed promptly today. Weak RSI after the second lower high a good short confirmation signal – news flow will probably dictate whether closing flat topped triangle is bull or bear ……!?.....
ps - Crude, gasoline close at all-time highs
Salty – I’m not sure that there is a general answer to your question, but gapping behaviours probably depend on market conditions. If an index/stock gaps up and is able to trade higher than its opening price for a lengthy period, it is showing strength; if the gap is closed very quickly, this is likely to show weakness imho. Hope this helps in some way.
The Baptist – Interesting post! – which timeframe do you use for your candlestick charting, and when you say “ the gap everyone referred to” do you mean the apparent ‘Island Reversal’ gap that the Nasdaq made last week, and referred to in the posts/charts above? – Thanks – great input…!....... :cheesy: