Last year I did some studies on the blog that looked at how the market reacted to different morning gap sizes. I defined a “large gap” as anything greater than 0.75%. Since early fall that hasn’t even been an average size gap. As I’m writing this in the morning the futures are up almost 3%. Below are the results of a test that looked to buy just after a large gap up and then sell at the end of the day. They are run for varying gap sizes going back to September 2008.

Large gaps higher in downtrends have historically shown a propensity to squeeze shorts and continue higher over the course of the trading day. This propensity has continued to exist over the last 6 months or so while the market has been especially “gappy”.