Possible Exhaustion Gap this morning. (or continuation (runaway) gap)
"An exhaustion gap is the last gasp of an up or down price move. It is very difficult to distinquish from a runaway gap until after the fact."
"Typical Price Movement An exhaustion gap is associated with a quick up or down movement in price (like a runaway gap). Prices move rapidly until, suddenly, they meet an abundance of supply in an up move or demand in a down move. At that point, the move is ended abruptly by a day of very high trading volume. It is not uncommon for an exhaustion gap to appear between the next to the last and the last day of a move."
"Typical Volume Activity An exhaustion gap is usually accompanied by a day of very high volume on a relative basis."
"Frequency of Occurrence By their nature, exhaustion gaps occur with low frequency at the end of up or down price moves."
"Technical Significance An exhaustion gap implies the end of an up or down move. After an exhaustion gap, you can expect an area pattern to form that eventually leads to price continuation or reversal. Even if price does eventually continue in the direction it was moving prior to the exhaustion gap, anticipate a time delay in the price advance or deline (that may warrant closing out your positions, depending on your investment time horizon). On the day following a gap, if a reversal day develops with the closing prices back to near the edge of the gap, it is extremely probable that the gap is an exhaustion gap rather than a runaway gap. Exhaustion gaps are normally filled in two to five days."
"Technical Analysis Tip Exhaustion and runaway gaps have similar characteristics that make them difficult to distinquish from each other initially. When one of these gaps occurs, immediately place protective stops to the gap price. Even if you think it will be an exhaustion gap, you do not need to immediately sell your postions (or cover short positions) or reverse your positions. You can wait until more evidence is present."
Source: "The Technical Analysis Course" Revised Edition by Thomas A Meyers
Mike |
