No. of Recommendations: 8
No.
CXO Advisory examined: Do opening gaps reliably indicate either reversal or continuation for the balance of the trading day? To investigate, the site related opening gaps to subsequent open-to-close returns for SPDR S&P 500 ETF Trust (SPY). Using daily SPY closes and opens, both adjusted for dividends, from the end of January 1993 (SPY inception) through late March 2025, they determined that:
Over the full sample period, average daily SPY opening gap is 0.040%, and average daily open-to-close return is 0.006%. The correlation between daily SPY opening gap and subsequent open-to-close return is 0.01, indicating little tendency for either reversal or continuation of the gap for the balance of the trading day.
No. of Recommendations: 22
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
