Thursday’s Selloff in the Nasdaq: High Historical Probability?
Since 2022, 100%: Rapid gap fills of large gaps up in A period typically lead to further selling.
The Big Sell
Let’s take an AMT overview look (30 minute candles) at last Thursday’s session in the Nasdaq:
Yikes. That is one nasty TPO! If you missed the opening range breakout, the second flush after the last effort / consolidation towards the end of A and the beginnging of B would have been a sign that we might be in for a very emotional session to the sell side. Indeed, after A period, shorts I had payed handsomely. I can’t help but admit I felt a little offsides, however, and closed my positions far earlier than I likely should have. I wanted to do some more research on what typically happens in the Nasdaq on large gap up fill sessions, and how far directionally a session can really go. That research inspired this post.
Trading Gap Fills — Gap Fill and Go?
Some trading strategies revolve around reacting to a market after it has filled a gap from the previous session. We find with smaller gaps, this can sometimes be true — on gaps up, falling to the previou’s days highs and continuing upwards, or in the case of gaps down, building to the previous day’s lows, then falling back down.
However, for large gaps greater than 0.5%, we find a much different story…
Gap Fill and — Oh No!
Our historical data in the Session Matcher on AMT JOY paints a very convincing picture about what happens when large gap fills are filled quickly. With sessions since 2022 on the AMT JOY Project, we find only two sessions with gaps above 0.5% and a fill in A period — and both suggest that much more selling can be expected — on average -1.86%, or down more than 1% after filling the gap! The two sessions we find are January 3rd and August 22nd:
Link: https://amtjoy.com/session-lab/mnq/2023-08-22/
Link: https://amtjoy.com/session-lab/mnq/2023-01-03/
In both sessions, an attempt at dip buying was made in C / B periods, but these attempts both failed, and we ended up closing significantly lower. As mentioned above, a little bit of this dip buying was attempted at the end of A period and beginning of B, but breaking the lows of A period in B period was the nail in the coffin for buyers.
Feedback is Welcome
Like the AMT JOY Project? Have comments / questions / feedback? Feel free to write a comment here!
Market Litany
The market is my shepherd;
I will follow the market.
I will not fight the market;
I will align with the market as best I can.
I will not short above the opening range high;
I will not long below the opening range low.
I will not short above the initial balance high;
I will not long below the initial balance low.
I will not overtrade;
I will not tilt.
I will show up every day;
I will execute according to what the market is trying to tell me.
Originally published at https://amtjoy.substack.com.
