Sunday, September 25, 2011

Possible Rally to Fill Thursday's Gap Down

Click on Chart to Enlarge

There is a historical tendency for large gap downs to be filled relatively quickly. I would have to say that when that gap is in a consolidation zone that is even more true, as opposed to when the market has broken to new lows.

See the notes on the chart for what I think is a likely scenario here. It seems to me that it is a function of the underlying order structure of the market that the market makers push to take out all the stops below all the swing lows of the rally which "causes" this typical pattern. Once that stop cleaning is accomplished the market is free to rebound, but any new break below that stop cleaning low is likely to lead to significant downside follow through.

So watch for that here.

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