FaceBook! Or Face Plant?

I tend to trade by the gap.  Even MensaMonkey has been programmed to account for the gap (although he's probably ignoring that too).  A price gap occurs when the high of the previous day is lower than the low of the next day (for a gap up), and when the low of the previous day is higher than the high of the next day (for a gap down).  Got that?  If not, take a look at the chart below.  I've "ovaled" the most obvious gap ups and downs.  Take a look at the note in the chart.  Today's high almost hit $38 which would "close the gap" from May of 2012.

 

 

These gap tend to fill eventually.  (Emphasis on the word eventually, as you can see). You also can see the history of FaceBook price gaps in the charts below. 

There really is no clear correlation here between the size (%) of the gap and the number of days it takes to fill, although I did some analysis on NASDAQ gaps back in 2011 which paints a clearer picture.  Take a gander if you find gaps as stimulating as I do.

Dissecting FaceBook gap history, I found that 14 of the 15 gap downs have been filled.  The one that wasn't filled occurred when FB was only two day old.  11 of 12 gap ups have filled.  The most recent was a couple of days ago which is the reason I'm writing this.  That's a whopper of a gap and my guess is that if FB can make four more cents tomorrow (and fill the original gap from day two of it's existence, that monster gap from last week will start to fill...slowly but surely...even in this anti-gravity market.  The average number of days for FB to fill a gap is 21.8; a range between 1 and 122 days, not including the two gaps that have not filled yet. The mean really can be mean.

Don't get me wrong.  I'm a fan of Facebook and that hoodied-out genius, as much as I don't partake in that whole social-media retardedness.  The Zuckmeister paid off the Bitcoin Brothers for borrowing their intellectual property; it's water under the bridge now.  I hope the stock price goes to $100 dollars per share tomorrow, but the monkey in me says $26 before a summit to $100.

2011 NASDAQ Price Gap History

Unless the market is starting a new major trend, gaps created by massive buying and selling can provide good entry points for a quick gain. The recent upsurge has created these very opportunities. The last few days on the NASDAQ chart below illustrates what a gap "ups" and "downs" look like. It is important to note that I am referring to gaps that do not fill the same day that they are created.



After the price action this week, you may feel like you are missing the boat but recent history shows that the chances are good that price will reverse and fill those spaces created recently between the high of the previous day and the low of the current day.

Within the last year the NASDAQ has gapped up 25 times and gapped down 16 times. Of these 41 gaps, 97.6%, or 40 of 41, have filled. The one gap that did not fill occurred on July 27th. This was the beginning of the first real downtrend of the year.

Accepting the fact that all gaps do not fill, the question that comes to mind is, "how long does it take to fill a gap?"

The chart below shows clearly that 83% of the gap "ups" have filled within 20 days, and 88% of the gap "downs" have filled within 20 days.



You can see now why I worship the gap. It's like free money...what's the catch?

Approximately 85% of the gaps have filled over the last twelve months. What happened to the other 15%? The four non-conforming gap "ups" that refused to fill within a month took 24, 31, 50 , and 173 days to fill. One of the two non-conforming gap "downs" took 44 days to fill. The other one (the 41st mentioned above) is still waiting for NASDAQ 2850, or another 8.8% before a close can occur. Maybe the market will take care of that tomorrow morning.

This gap review has only a skimpy data set but the overall results correlate nicely with some of the other larger studies I have come across.

Related post: Gaps R Us