The S&P 500 Gap at 4200 Closed, Now What For the Stock Market?

Gap Analysis

Gaps occur when stocks open above the high of the previous day or below the low of the previous day and stay that way for an entire session. 

I have frequently written that I expect gaps to close, usually sooner rather than later. But it took over 9 months for that gap down in August of 2022. I was wondering if it would not close until the next bull market. but it did, last week. 

Gaps act like magnets. anyone buying gap breakouts or shorting gap breakdowns and holding, usually sees their gains taken away when gaps close. 

Two Open Gaps 

Ironically, the most recent gap up filled the remaining gap down from August of last year. 

We now have two stacked gaps that I expect will fill sooner than that later.

S&P 500 Weekly Chart 

On a weekly chart, there are no open gaps at least from October of 2018 till now. 

Triangle Formations

There are are several technical patterns one might draw on the above chart including the ascending triangle formed by the dashed lines above. The ascending triangle is generally a bullish formation. 

The symmetrical triangle formed by the dotted line and the bottom dashed line is another possibility. If you have faith in that formation then it has already been back tested with an upside breakout.

But none of these formations, including rising bearish wedges one might draw, seem clean. There are too many questionable patterns here that make the technical picture look like mud.

If you are bullish here but bearish 3500, then you are not doing something right. Stacked gaps are a big warning, so are the number of stocks participating in this rally.

Stock Market Breadth 

Japan vs the US 

New Bull Market? 

The Wall Street Journal says S&P 500 Starts a New Bull Market as Big Tech Lifts Stocks

That helped propel the S&P 500 up 0.6%, allowing the index to finish up 20% from its October low.

Sorry, but a 20 percent rally does not make a new bull market. It’s possible one has started but we will not know until there are new highs in the stock market. 

Nasdaq 100 Index Bear Market Rallies

While plunging from 4816 to 795, the Nasdaq had rallies of 43 percent, 54 percent, and 59 percent, none of which started a new bull market. 

The Wall Street journal proclamation is nonsense until a new high is made. It is just too early to tell, and I highly doubt it as well.

Meanwhile, the gaps below begged to be filled and I am sure they will be.

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