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Frank Hogelucht

Frank Hogelucht

Individual investor, trading for a living since 2007, taking a statistical approach in combination with historical market data and addicted to developing market-neutral algorithmic trading…

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Unfilled Gap Up and Consolidating

CartoonStock.com

On Wednesday's session the market more than fulfilled all positive seasonal tendencies (e.g. the first week in December, see Seasonalities: The Market's Performance in December) and favorable short-term setups (see ) right at the start of the month, closing higher +2.12% and leaving an unfilled gap up of +0.86% (today's low above the previous session's high). 484 stocks being part of the S&P 500 penetrated their previous session's high while only 11 stocks penetrated their previous session's low, the 5th occurrence (only) since 1990.

In addition, the ratio of S&P 500 Advancing / Declining issues and the ratio of S&P 500 Advancing / Declining volume closed above the 20 mark, the 18th occurrence since 1990 (probabilities for trading higher 3 sessions later are slightly above, but probabilities for trading higher 5 sessions later are slightly below at-any-time chances for a higher close 3 and 5 sessions later respectively).

But when the SPY left an unfilled gap up greater than +0.75% in the past, buying power was regularly exhausted for the short-term, and historical probabilities and odds are tilt in favor of lower prices over the course of the then following at least three sessions.

Table I below shows all occurrences and the SPY's historical performance (since 01/01/1990) over the course of the then following 1, 2, 3, 4 and 5 sessions, assumed one went long on close of a session where the SPY had left an unfilled gap up greater than +0.75% in the past.

Historical Occurrences and Returns

(* no close below trigger day's close during period under review)

It is interesting to note that

  • ... the SPY closed lower (than the trigger day's close) 3 sessions later on 12 out of the last 14 and 8 out of the last 9 occurrences ;
  • ... the SPY never looked back and did not post a single close below the trigger day's close over the course of the then following 5 sessions on 4 out of 20 occurrences, but did not manage a single close above the trigger day's close over the course of the then following 5 sessions on 7 out of 20 occurrences.

Conclusions:

From a statistical and historical point of view, after leaving an unfilled gap up greater than +0.75% probabilities (winning percentage) and odds (expectancy) are tilt in favor of some consolidation over the course of the next three sessions (in this event probably until Monday, December 6).

Successful trading,

 

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