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Minds the Gaps

This is a syndicated repost courtesy of NorthmanTrader. To view original, click here. Reposted with permission.

As our see no risks market continues chugging along near all time highs again you may have noticed that many of the gains since the September lows are again coming via magic overnight gaps.

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So what you say? If the market doesn’t mind it doesn’t matter. And it’s true as Art Cashin once said: “All gaps fill, if ever”. A cheeky hint that gaps can remain unfilled for a long time or never fill.

But if the entire rally construct is dependent on open overnight gaps one has to wonder.

To make my point here’s a chart of the $SOXX since the September lows:

Gap after gap after gap. All unfilled making a mockery of the concept of intra-day price discovery. Gap, ramp & camp.

If this all looks somewhat familiar, it is. After all we saw the same nonsense during the August squeeze to new highs:

What happened to all these gaps?

They all got filled in September, every single one of them.

Yes, gaps matter. Individual gaps may not matter, but consecutive clusters of them increase reversion risk to backfill the gaps.

And note this rally here is no different other than it being even more steep:

There is of course still the matter of the September down gap that is still open an it may well fill, but as you can see this market has some backing and filling work to do.

But for added twist and giggles these are just the gaps in the last 14 trading days.

What about the gaps since the March low? For a reference check $DIA, the ETF that tracks the $DJIA:

That’s a lot of open gaps. A lot.

This market is working really hard to convince everybody that nothing matters and that things are different this time. Well, they have to be, because there is no technical history that suggests that this many open gaps are sustainable without some backing and filling. None.

And because of this history the message is clear: Mind the gaps.

Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

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