High Gap Days

First consider the issue of the total number of gaps occurring in the market on a given day. The total number of gaps in a given day can vary greatly. The distribution is not uniform across time. On some days, more than 500 stocks gap. Of those 500, all might be down gaps. Or the vast majority may be down gaps. The same is true for up gaps. Do these dominant direction high gap days give you any clue about future market direction?

Table 8.1 shows the 25 days in our study that had the most total gaps. The table shows the date, total gaps, the breakdown of down versus up gaps, and the average size of the gaps. As can be seen, there were 25 days on which 553 or more gaps occurred. Nine of those days had gaps only in one direction. The remaining 16 days had less than 10 gaps in the opposite direction from the majority. You might expect to see such a one-sided split if the average gap size were quite large, but that is not the case. For example, on December 1, 2010, the average gap up size was only 0.576%, but there were 617 up gaps and only six stocks that gapped down. The largest average gap in this list for the majority side was –1.781% on September 22, 2011.