Clean Gap Fill Example on Goldman Sachs GS

Sep 2, 2008: 1:18 PM CST

I wanted to highlight a quick, intraday example of a classic (or ideal) gap fade play that occurred on Goldman Sachs (GS) this morning.  As a bonus, I’ll show the S&P 500 (SPY) chart intraday and the interesting reaction move that occurred today.

Goldman Sachs (GS) Intraday:

The morning (and week) began with a large volatility gap up, and it’s usually best to try (trade) for at least a 50% retracement of a stock gap, but the odds for success (100% fill) trail off as the gap size increases.

Nevertheless, Goldman Sachs rose for the first 10 minutes and then collapsed $4.00 to fill its intraday gap (trade at the price of Friday’s close).  Often, with a gap fill complete, the next strategy is to try to trade IN the direction of the impulse (gap) and capture a portion of the (in this case) upside move.

I wanted to emphasize the hammer (buy signal) that occurred as price re-visited the prior close.

Goldman only gave a 62% retracement (stopping exactly at the Fibonacci line) of the gap before rolling back over, and now (as of this writing but not seen on the above chart) has retraced back to Friday’s close once again.

An interesting series of patterns have occurred so far on the S&P 500 (and Dow and NASDAQ for that matter) Index.  Keep in mind these are intraday charts and are not complete yet.

S&P 500 (SPY) Gap Fill:

The market has made two “Measured Move” plays already, and the most recent bear flag (measured move) has been remarkably violent (achieving its target very, very quickly).

Today’s action will be recorded as an official gap fill, though the gap was a relatively large gap.

I’ll be compiling the statistics for August’s gap fade strategy soon, so be sure to stay tuned for that.

Fascinating action so far – September could be wild!

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