Gap and Crap buying exhaustion formation
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Started by metmike - Aug. 30, 2019, 6:12 p.m.

I was sort of late to the party in providing the affects of Dorian's forecast to the OJ market this week but made up for it in the last day.........which by far was the most interesting. 

OJ is very thinly traded(sometimes less than 1,000 contracts in a day) but today the November OJ spiked to a record(for that contract) 4,000 contracts.

This makes it prone to price gyrations which other markets don't see as often.......like gaps higher or lower on a hurricane or freeze forecast(actually, natural gas has high volumes and this happens alot on Sunday Night)

Anyway, we had gaps higher in the OJ both Thursday and Friday morning. See the description below which will help you to understand the market psychology in situations like that. 

            https://www.marketforum.com/forum/topic/37984/

By metmike - Aug. 30, 2019, 1:26 p.m.            

            

 GAP AND CRAP TECHNICAL FORMATION DEFINED

Breakaway upside gap from earlier this week in OJ on Thursday Morning because of the elevated risk from the stronger hurricane taking a more damaging path..............HAS JUST BEEN FILLED entirely from the latest forecasts showing a farther north track, leaving most of OJ country to the left/west of the strongest winds.

This is a very negative, buying exhaustion price formation. Initially, the market gaps above the previous days high on the next days open, leaving a gap in prices that were never traded between those previous days highs and the new days lows. This happens because of some powerful force affecting market/trader mentality while the market was closed that caused the bulls to get much more aggressive with buy orders and bears to pull back or be overwhelmed with BUY orders ABOVE the previous days high.

When that gap is open, it is often a breakaway gap, signaling even higher prices as the new force that caused it remains. If that gap is filled and prices return to the previous, lower range, it can be quite bearish...........usually only happens when the bullish force pushing the buying goes away. At that point, the exuberant buying has been exhausted and everybody buying on the most bullish news yet, has bought already and there's nobody left to keep buying and sellers actually have to push the market lower to attract buyers at lower prices.............BELOW the gap. 


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By metmike - Aug. 30, 2019, 6:32 p.m.
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The discussion below is for stocks. Also, I actually have a different definition for exhaustion gaps, like the 2 that happened today in OJ vs what they describe.

But use the info below to understand gaps a bit better. 


 Technical Analysis  Technical Analysis Basic Education 

Gaps

https://www.investopedia.com/terms/g/gap.asp

Key Takeaways 

metmike: The chart below is a short term exhaustion gap(because the market made new highs, then filled the gap so quickly). As you can see though, gaps sometimes are not perfect indicators. They only tell you what that market is thinking at that moment in time.