Gap And Go?
This a quick follow-up to the notes from yesterday about single-day reversals. Futures are indicating a modest gap up this morning, suggesting some short-term follow-through.
As we saw from the previous studies, further upside over the next several days was not unusual, but the gains were usually not sustained when looking out over the next few weeks.
Let's revisit the reversals, but filter them based on a gap up the next morning. Reversals and gaps get people excited about having put in a potential bottom.
Instead of a table, we'll show thumbnail charts instead. The blue dots are as of the opening of the gap up (i.e. Friday's open) and the red dots are one month later. Of the 15 occurrences, 4 showed a positive return after a month, the average return was -1.3%, average max loss was -5.2% and average max gain was +3.1%. No surprise given what we looked at yesterday, but it's a little further confirmation that these are usually not gap-and-go scenarios.