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To: Lee Penick who wrote (42238)	12/14/1997 8:57:00 PM
From: JPR	Read Replies (1) \| Respond to of 186894

Lee: Here is my understanding of gaps. 1: Ex-dividend gaps also known as common gaps and area gaps are of no significance and get closed quickly. 2: Breakaway gaps, as the name suggests is a break away from a price pattern and on the upside is accompanied by high volume and on the downside, volume plays lesser role. If after-the-gap volume is heavier than before the onset of the gap, it is more than likely , the gap will not be filled in short term. 3: Runaway gaps, as the term suggests is a runaway event and an emotional event in the life of the stock. The stock should be coursing up or down, when this emotional event takes the price to a new downside or upside level. The level of the price ,after the gap is created, depends on the volume and the price level is proportional to the volume. The more the number of runaway gaps, say 3 or 4, the momentum will run out of gas and goes into what is called Exhaustion gap and results in Island reversal. 4: Exhaustion gap as the term implies, is a terminal event either on the upside or downside. Exhaustion gap is characterized by heavy volume disproportional to the price movement. 5: As the island reversal implies, there is consolidation, narrow price movement , congestion, and one gap on either side of the island. 6: Trading decisions should not made on gaps. Some gaps go unfilled and some take weeks, months. 7: Gaps provide support and resistance levels. Greater volume after the upside gap provides a strong support at the gap. Dwindling volume post-gap upside is a sign of feeble support. I may be guilty of strong statements here. I am sorry. I invite comments . Paul

To: Lee Penick who wrote (42238)	12/14/1997 10:36:00 PM
From: Barry A. Watzman	Read Replies (1) \| Respond to of 186894

>re: Please explain what is ment by the term "gap" as some of you are using it. In this context, the term refers to a gap in the stock's price. Most commonly, this is a gap that happens from one day to another, although an inter-day gap is also possible (but unlikely). As an example, if the stock closes on one day at $70 per share, and opens the next day at $75 per share (most commonly because of some news that occured after closing, such as the release of earnings), then it would be said that there was a "gap" in the stock price. Gaps can also happen with the price headed down, of course. There are those who believe that, in general at least, "gaps must be filled". In this example, if the stock opened on the 2nd day at $75 and continued on to $80, $90, $100, they would believe that sooner or later the stock would (must ?) return to "fill the gap" by trading between $70 and $75. Of course stocks go up and stocks go down, often creating small gaps as they go, and undoubtedly most gaps do indeed get filled, just because of the somewhat erratic nature of stock prices. Personally, however, I have a real problem with the concept that gaps "must" be filled, a view which some of these people seem to hold. In my view, gaps exist, fine; most will get filled by the random action of future stock prices, but there is no reason, as I see it, to believe that stock prices are influenced by the presence of gaps, or that there is any particular tendancy for them to get filled.