Gapology

Gapology

And today we undertake the venerated topic of gapology.  Yesterday there appeared an opening gap in QQQs/NDX that, if not closed very early today, might have some relevance.  You can call them exhaustion gaps, breakaway gaps, yada yada.  But when they happen in an index they often mean something.  In the following, I’ve provided more descriptive names.  Take for instance the 1929 oh shucks gap in DJI:

Notice it appears at about the 50% price level.  How about the 1987 darn gap in DJI:

Again, it appeared at 50% of the total down move.

There was a whippie upside gap in QQQs on October 29, 1999 and later an oh XXXX gap down on February 15, 2001, the former at 25% of the price move up and the later at 61.8% of the move down.

Finally, such scientific inquiry would be incomplete without the 2007-09 SHTF gap that occurred on October 3, 2008 at 61.8% of the total move down:

With that background, what does yesterday’s opening gap look like:

On the left there is a retrace tool anchored on the April 15, 2014 low and centering the 61.8% level at the gap.  With that, price might be projected to 94.44.  Employing the same method but centering 50% on the gap and I can squeeze out 97.00.

I say squeeze out 97 because I like that number.  No, not because I’m long, but because of some metrics I discussed well more than a month ago.  Here’s the short version.  QQQs first trade was 3/10/1999 whereupon it declined to a then all time low on 3/24/1999 at 48.50.  Exactly 1 year to the day later and exactly 72 points later, QQQs hit their all time high of 120.50.  Exactly.  In your face on the button.  360 degrees of one year and 72 points or a “pentagonal” unit of the circle but in price.

So what.  Well, the 2007-2009 bear low was 25.05 on 11/21/2008.  Plus that interval of 72 and you have 97.05.  I like that number.  There’s one more plus to the 97 number.  At 97, QQQs will complete the mythical “expanding ending diagonal triangle.”  In Frost and Prechter’s view (EWP pg 37) this is similar to the Yetti in that they’ve seen just one so they can’t say whether it exists or not?  In Edwards Magee it’s a broadening formation or something like that.  Regardless, the message to the formation is something is ending.  I’ve been watching that bizarre thing since the April 15 bottom and 97 intersecting that upper boundary would constitute a happy ending and a not so merciful ending for bears.

If this remotely occurs (94 or 97), it will be the rocket I’ve been anticipating as the capstone to the 2009-2014 bull.  That is not a good thing because that would, IMHO, put the markets squarely in line with the character of the dot.com moment.  The final rocket up in 2000 was dwarfed by the rapidity and viciousness of the immediately subsequent brick down.  And I have several essays on that.

Jim