Third Gap Of +1%

This is just a quick note to mention that the S&P 500 is poised to begin trading with more than +1% gap open from the prior day's close. This is highly unusual.

Going back to the inception of index futures in 1982, there were only two other days (!) that managed to accomplish this, November 25, 2008, and August 27, 2015.

After both instances, stocks retreated in the next several sessions, suffering 2-to-1 risk-to-reward ratios. Three days after the 2008 occurrence, the S&P was -5.9% lower and after the 2015 occurrence, -2.7% lower. Those returns are from the open of the third gap day.

If we relax the gap size to +0.75%, then there were 9 occurrences. Three days later, the S&P added to its gains only 2 times, averaging -1.9%. If we go even further and look at gaps of +0.5%, then there were 26 occurrences and the three-day win rate was 38%, averaging -1.2%, so still weak.

We're likely to see our short-term guides hit more extremes with a third up day, so short-term traders will likely have some difficulty if trying to buy into this.