Laps And Gaps To Get Your Edge by Larry Connors and Ashton Dorkins
When a stock gaps higher at the open on bullish news, will
that lead to even higher prices?
When a stock gaps higher at the open on bullish
news, will that lead to even higher prices? This
is the question that many traders ask before the
market opens. You watch the financial news in
the morning and hear a list of stocks set to open higher due to positive news overnight. Then you see a live
report from the floor of the exchange that shows traders
gathered around the post where XYZ stock is traded. Youíre
told that stock is due to open 10% higher from the previous
dayís close. And itís all accompanied by a great story. If you already own it, youíre probably thinking you couldnít ask for
better news. And if you donít own XYZ, you may be wondering
if you should buy the stock. ButÖ
In the final minutes before opening bell, you begin to recall
instances in which stocks like this one actually closed lower by
the end of the day. How that is possible with such bullish news?
QUICK REVIEW OF LAPS AND GAPS
Recently, we conducted new quantitative research on laps
and gaps. We looked at the relationship between a stockís
opening price and closing price on the previous day. To draw
valid conclusions, we analyzed more than seven million
trades from January 1, 1995, to June 30, 2006.