Gap Filling Frenzy on Wednesday
"A gap, in the language of the chart technician, represents a price range at which (at the time it occurred) no shares changed hands......Gaps on daily charts are produced when the lowest price at which a certain stock is traded on any one day is higher than the highest price which it was traded on the preceding day"
- Edwards & Magee
Gaps were filled across the board on Wednesday. The Japanese call these holes in the charts, "Windows". So the gaps were filled and the windows were shut. So what?
Well the way I look at it, we're obviously in a strong uptrend in stocks. Monday's monster gap higher left a hole in a lot of these charts. And with today's fills, we now have a pivot point. New lows below today and things get hairy. But with the rally off the lows across the board, the benefit of the doubt still goes to the bulls.
Look at these charts. One by one, we keep seeing the same thing:
S&P500 $SPY - Gap Fill and Rally
Dow Jones Industrial Average $DIA - Gap Fill and Rally
Dow Jones Transportation Average $IYT - Gap Fill and Rally
Russell 2000 $IWM - Gap Fill and Rally
MidCap 400 $MDY - Gap Fill and Rally
Euro $FXE - Gap Fill and Rally
Now on the flip side: US Dollar Index $UUP - Gap Fill and Selloff
US Treasury Bonds $TLT Filled last Wednesday's big Gap and then Sold off
But wait! What about the really strong areas that didn't fill any gaps? The Nasdaq100 - "BEAST" didn't close anything. That strength can't be ignored. $QQQ
And Finally here is a the most interesting gap fill for me Wednesday. Freeport McMoran ($FCX) is a stock that I look at as a gauge for global growth, industrial demand and really the commodity space as a whole. These sectors consist of companies with humongous market capitalizations. And most importantly, Freeport is THE copper stock. Want to know where this market is going? Watch Copper here (see my 3/26/12 Post).
So to start 2012, Freeport got going with a Gap higher to start the year and rallied as much as 34% in January before retreating. That gap from January 3rd was filled today before the stock rallied off its lows:
Was that it for Freeport? Or will the stock (and in turn Stocks as an asset class imo) continue to sell off? I don't think all of these gaps were a coincidence. If new lows are put in below these filled gaps in the charts above, I would start to get much more defensive. But chances are that today's sell off closed those windows, filled those gaps, scared some weak hands out of the market and new highs will be put in soon.
Only time will tell. But I thought the gap-filling frenzy today was worth mentioning. Have a good one folks.
Cheers!
Source:
Robert D. Edwards & John Magee - Technical Analysis of Stock Trends