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Data Brief                                                                         Posted 12/01/10 at 4:00pm EST by Jason Goepfert

 

 

The month has started off with a bang, as the S&P 500 and most other indices gapped up huge at the open and haven't faded a bit during the day.

 

We took a look at something similar to this kind of price pattern on November 5th.  At the time, the conclusion was quite bearish and the market happened to follow through on that.

 

Let's take another look.  This time we'll just look at every large unfilled gap, with a close above the open, that has occurred within 5% of a 52-week high for the S&P 500 SPDR (SPY).  By "large unfilled gap", I mean that today's open must have been at least 1% above yesterday's close, and during the day we never dipped below the previous day's high.  These are extraordinarily strong days.

 

The chart below shows the S&P's performance over the next 30 trading days:

 

 

It's pretty obvious from that that the next couple of weeks tend to be weaker than average.  7 trading days later, the S&P was positive only 36% of the time (out of 23 occurrences) and sported an average return of -1.0%.

 

The table below shows all of them, along with the S&P's performance over the next couple of weeks.  We also show the maximum amount the S&P was able to rally before falling back to fill its gap, if it did so within 30 days, and also the number of days it took to fill that gap.

 

 

Overall, the results weren't all that great, which shouldn't be surprising for anyone who read the November 5th report.  The results have gotten noticeably weaker over the past decade.

 

Since April 1999, the S&P's two-week return was a median -1.9% with only 3 out of 13 instances showing a positive return.  All but one of them closed the gap within two weeks.

 

Ignoring the requirement that we be near a 52-week high, there have been 5 times we've seen these super-strong gaps to kick off a new month (11/03/97, 02/02/98, 04/01/08, 08/02/10 and 09/01/10).  Three of them led to middling, choppy behavior for a few days before diving lower, while two of them (02/98 and 09/10) led to a steady stair-climb higher.  None of them just immediately rolled over.

 

 

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