Recent Gaps Can’t Fill

Mar 3, 2008: 6:03 PM CST

Last week was a difficult time for classic gap faders, as the market never seemed to fill a gap.

The mantra of January was “Almost all gaps fill,” but February is the near opposite of that sentiment, in that “Few Gaps Fill.”

Last week (and today) was particularly rough, as the market turned downwards after hitting significant resistance. Let’s peek:

The last few trading days have resulted in overnight gaps to the downside, none of which have filled (yet), or played out according to classic gap fade tactics.

We do see a giant momentum divergence forming, which hints (but not guarantees) higher prices are yet to come, as the market has found potential short-term support.

It’s very interesting to see how the market shifts and brings certain strategies in favor and out of favor.

Trader Bo Yoder calls this part of the “Payback/Pay-out Cycle” that plagues all traders, whether they’re aware of it or not.

While the gap-fade strategy ‘cleaned up’ and provided profits in January, traders caught on to the benefits of this strategy and the strategy failed to provide satisfaction through February as the market sought to foil late-comers to the party, unaware of the cycle.

It will be interesting to see if the market can make a swing higher in the next few days, as the 15-minute chart hints. If so, then that resolution will confirm the ascending triangle that’s developing on the daily charts.

If anything, there’s a clear level to place your stops on this chart if price does continue its downtrend lower. Let’s see!



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