Home > Short-Term Trader > Indices Likely To Fill Today’s Monster Gap Sooner Rather Than Later

Indices Likely To Fill Today’s Monster Gap Sooner Rather Than Later

Today's ginormous gap wiped out any solid risk/reward opportunities
for those wanting to add to existing longs or initiate fresh ones.
However, it did take us up into a zone of resistance providing an
excellent opportunity to initiate short positions for those who are
looking for a gap fill and retest of last week's sell-off.

Last night, I highlighted a scenario which involved strength early
in the week followed by a spike lower to retest last week's sell-off.
Today's gap has further strengthened my conviction that we will in fact
swoon back lower very soon.

Not all gaps are created equal. There are those that get filled and
those that don't. It is my experience that more often than not gaps do
get filled. Three main types of gaps – Breakaway Gaps, Continuation
Gaps, and Exhaustion Gaps. If you want to learn more about gaps click here.

Then
there is a fourth type like today's very rare gap, name it as you like,
brought on by a massive news event during extremely volatile markets. It
goes without saying these are highly emotional occurrences and therefore
excellent candidates for gap fills.

Aggressive traders can
short into overhead resistance and add through a break of today's low.
The more conservative trader can wait for a break of today's low before
executing. Once we slide into the gap a fill should occur within 1-2
days with the price levels being 1111 in the S&P Cash Index and
1107 in the ES (S&P 500 E-mini futures). The next support level
comes in around 1100 in the 'Cash' and around 1090 in the 'ES', where
both the 200 day EMA and SMA reside.

Spx gap fill

 

With the EU's swift action and unbelievably large backstop of nearly
$1 trillion it is hard to imagine that in the near term the European crisis won't simmer down a bit. (Longer-term, I still think the Union
is still pretty much screwed.)

With headline risk likely to ease
for now,  I imagine the market will hold somewhere around the "gap
fill" or 200 day ma's. However, before entertaining this notion I will
focus on the game-plan at hand, which is to play the gap.

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Categories: Short-Term Trader
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