A little over a week ago I showed a study that examined large gaps up from high levels. The results were very compelling and suggested a strong downside edge. Today we are presented with a similar situation in the opposite direction. So this morning I ran some tests that looked at large gaps down from a low area. Below is one example typical of what I saw:
Perhaps a mild upside edge could be found, but certainly nothing as compelling as last week’s study. Results were volatile as well, with the average intraday drawdown over 1.6% and the average run-up over 2%.
Below I tightened the requirements to a 1% gap and showed all instances. Results were similar – just with fewer instances.
Bottom line is there may be a slight upside edge, but the direction is certainly no layup. No matter the direction be prepared for some volatile action today.