Do Gaps Always Have to be 'Closed?'

Do Gaps Always Have to be 'Closed?'
The precipitous drops of February 27 left some pretty sizable price gaps in almost every market chart, especially in the S&P and Nasdaq futures. Often, price gaps attract prices back toward them before repelling prices far away. But do market gaps always have to be “closed” before prices rocket back away from them? Find out here. (Note: Free Club EWI membership needed to access answer.


Category: Technical Analysis

Historically, the stock market indexes seem to always close any chart gaps. Currently, there are quite large price gaps on both the S&P and the Nasdaq futures charts near the start of the Feb. 27 drop for wave 1 down. Wouldn't you expect those gaps to be filled in wave 2 back up? Or can we expect this to be a break away gap that wouldn't be filled, if this is indeed the beginning of a huge c wave down?


Responder: Tom Denham
Date: 3/14/2007
"Must a gap be closed before prices move very far away from it? Certainly not!" (Technical Analysis of Stock Trends, 8th Edition by Edwards & Magee, p. 208). Gaps are part of market life and structure, and they are useful when trying to identify subwaves in a pattern. Gaps can occur anywhere, especially on a daily chart, but usually they appear in third waves. When gaps occur in fifth waves, they are often quickly retraced. (Tom Denham forecasts the FTSE, DAX, CAC, SMI, MIB 30, IBEX 35, Euro Stoxx 50 and -- NEW! -- Special Global Opportunities 3 times a week in the European Short Term Update, part of the European Financial Forecast Service. Read it risk-free for 30 days.)