Large Gap On First Session

In the report on Thursday, we took a look at other times that stocks sunk to a two-week low in the last sessions of the year. The sample size was woefully small, but almost every one of those times, stocks rallied to start the New Year. Looks like that's going to continue.

The S&P 500 is poised to gap up about 0.7% at the open, which would be among the largest positive opening gaps in the history of the SPY fund. The table below shows how it performed from the opening print of the New Year on gaps larger than +0.5% to the close over various time frames.

Its best results were over the next couple of sessions. Only twice did the S&P outright fail immediately, in 2000 and 2005. A month later, the S&P was higher 5 times and lower 5 times, with an even risk/reward ratio, so these big opening gaps were a very short-term positive only.

We've also noted how stocks have had a habit of forming their high for the month on day 2 or 3 of the New Year, which would fit with this gap data. The implications may change depending on how much of a thrust we see today (assuming the gains stick) but for now it looks to only be a short-term positive.