Post #3873 by mungofitch on the Mechanical Investing board

Investment Strategies / Mechanical Investing

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Starting with the basics, it's certainly true that a gap up is bullish. Average forward returns are better after a gap-up open than on other days.

Simplest to see on the index.

e.g., forward two week return annualized on the S&P 500 most days since 1990: 9.71%/yr rate.
Two weeks forward from the close on a day that the open was a gap above the whole of the prior day's range:
Gap of 0.2%: 19%/yr rate
Gap of 0.5%: 22%/yr rate
Gap of 0.7%: 33%/yr rate
Gap of 1.0%: 43%/yr rate

Two days of .6% gaps in the last month: 61%/yr rate from the second one.

Forward from a gap down:
Gap of -0.7%: -8%/yr rate
Gap of -1.0%: -18%/yr rate

Jim

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