Those Who Missed Shorting XLF, Are You as Depressed as Me?

When Will XLF Gap Fill?

  • Won't Fill for Months

    Votes: 8 28.6%

  • Partial Fill Within Weeks

    Votes: 1 3.6%

  • Complete Fill Within Weeks

    Votes: 10 35.7%

  • Partial Fill Within Days

    Votes: 4 14.3%

  • Complete Fill Within Days

    Votes: 5 17.9%
  • Total voters
    28
S

shortie

This Thursday I got so busy trying to find intraday plays that I totally ignored the fact that we have a GIANT Gap to fill on financials. Given the fact that this rally is getting old and the financials are way overbought, this gap must fill and soon.

Crap, I likely missed 15% (if the gap is filled). We probably will tank on Monday and i don't like to chase.

When will this gap fill?
 
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The bigger the gap, statistically speaking, the less likely it is to fill in.

The "common wisdom" that of "all gaps fill" is nearly always true with small and regular size gaps, I think the data I had showed that small gaps fill about 91% of the time and that regular gaps fill about 70 something percent of the time (of course that doesnt mean they don't go $5.00 againt you first before a 10 cent gap is finally filled)

However, when you start to deal witih gaps that are more then twice as big as the average gap they rarely are filled, at least going out 10 days (which is the furthest I took my data out), I think the number was in the upper 60ish%'s on them not filling.

This particular chart pattern you are dealing with would also have me miles away from shorting it right now because it's actually coming off of a pretty powerful bottom formation, and the large gap just provides more fuel to that fire. Your probably looking at 20/30% more upside before you see a significant pullback in my opinion.

I pretty much developed an entire strategy from that study of going with the flow on big gaps and during the last year and a half that I was trading very actively it was by far the most profitable strategy I had.

So this isnt to say the XLF won't fill...my exwife ran over my crystal ball and so it's not working..but the statistics dont stand in your favor on it.

Brandon
 
Also, those last gaps that filled are not similar at all, in fact the only thing similar is that they are large gaps.

However, if you look at them the prior two gaps occured in the context of a very clearly defined downtrend of lower lows and highs. It then rallied up the moving average and declined..pretty typical and what would would expect.

The XLF has now based, bottomed and been forming a pretty steady pattern of higher lows and highs. It's also easily crossed above the moving average point, which had been significant in the past, but now should serve as support. It then based again for a few days and had a strong breakout on pretty good volume. That's actually one of the most compelling buy signals you will typically find as a technical trader.

Like I said, I always reserve the right to be wrong, but if that gap was gonna fill it would have started right after the open. I think that looking back you are going to be happy you were busy doing other things.
 
GS stated they may do an offering. Could take down the XLF Mon. With that said GS reports tues so who knows.

I see it like this. The financials still need money and they're gonna do it through equity so it'll probably be within the next 2 weeks a few of these guys are gonna dump.

What really surprised me is that apparently GS really needs this bailout money and they only way they can get it off their books is through an offering. Kind of tipped their hand on that one.
 
There's gonna be some pressure on it Mon. Like Brandon said though, there are no sure bets. You'll probably have a good chance of getting in on Mon if you still wanna place a bet :)
 
If I was determined to short the XLF (and I'm not), what I'd do is wait for it to break below Thursday's low of the day. The reason I would do this is that my gap studies have indicated when you have a gap that is twice as large (or larger) then the average gap and then on the day of the gap it opens at the low of the day and closes at the high of the day on a higher than average range...then if that low is taken out its the closest thing to a 100% trade there is.

Thats a lot of if and thens..but its the highest odds trade I know of, but the stop can be mighty wide as you have to put it above the swing high achieved in the move up, but it will fill in over 90% of the cases if that happens.

If that low is not broken I would not go near a short in XLF.

Just remember though that what I have given you is only a tactic, not a strategy and as they say A Strategy without tactics is the painful and slow road to victory. Mere tactics without strategy is the road to noisey defeat.

Brandon
PS..my last update on my data is about 2 1/2 years old..however I kept it for about 4 years and the numbers stayed very consistent across market types.
 
Quote from Brandonf:

The bigger the gap, statistically speaking, the less likely it is to fill in.

The "common wisdom" that of "all gaps fill" is nearly always true with small and regular size gaps, I think the data I had showed that small gaps fill about 91% of the time and that regular gaps fill about 70 something percent of the time (of course that doesnt mean they don't go $5.00 againt you first before a 10 cent gap is finally filled)

However, when you start to deal witih gaps that are more then twice as big as the average gap they rarely are filled, at least going out 10 days (which is the furthest I took my data out), I think the number was in the upper 60ish%'s on them not filling.

This particular chart pattern you are dealing with would also have me miles away from shorting it right now because it's actually coming off of a pretty powerful bottom formation, and the large gap just provides more fuel to that fire. Your probably looking at 20/30% more upside before you see a significant pullback in my opinion.

I pretty much developed an entire strategy from that study of going with the flow on big gaps and during the last year and a half that I was trading very actively it was by far the most profitable strategy I had.

So this isnt to say the XLF won't fill...my exwife ran over my crystal ball and so it's not working..but the statistics dont stand in your favor on it.

Brandon
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Thank you for the words of wisdom...very few good posts like these. Much appreciated. :)
 
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