Gap (Up) and Go Failure

By Lawrence

One very reliable pattern showed up today (Jun 13, 2011) in Emini S&P that worths a more detailed explanation.

The Setup

  • Market down more than 2 to 3 percent from previous month close
  • Market gap up but within previous day trading range
  • Tried to gap up and go (i.e. rally off open at once) but stopped after 15 minutes
  • Then the next hour trapped within OR (open range or the first 30 minutes)
  • Extremely bearish $tick reading all along
  • Last swing down coming off VWAP


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Comments
  • smilingsynic June 13, 2011 at 6:06 pm

    In bear markets, markets often gap up from the previous close, only to sell off, leaving the open higher than the close.

    Intermediate term bear moves often end with a parabolic move, with a large, climactic, gap down, a flush of sorts.

    In bull markets, markets often gap down from the previous close, only to be bought, leaving the open lower than the close.

    Intermediate term bull moves often end with a large, cllmactic gap up, a flush of sorts.

    To what degree are those tendencies the result of MM’s? To what degree are those the result of retail traders (esp the gaps at the end)?

    Thanks for the article.

  • Lawrence Chan June 14, 2011 at 8:35 am

    Before 2005, where bots based MM is rare, the orderflow has about 20 to 30% of activities from MMs as reported by various MM firms on their earnings and activities.

    As of 2009, program trading and bot driven activites has exceeded 50% of NYSE volume.

    So it is pretty safe to estimate that nowadays, the MM driven price activites account for 40% or more of the intraday swings.

    That does not include option market makers doing their stuff actively during option expiration weeks.

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