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Chapter 8. Gaps and the Market > Summary - Pg. 202

202 Technical Analysis of Gaps Comparing the market down to the market up sec- tions, the picture is not as clear. The most striking thing to observe in comparing those sections is that the returns (but not the market-adjusted returns) are lower for the market down section in all but 2 of the 30 cells. For up gaps the prior market conditions don't seem to matter too much. Doing the same types of compar- isons in Table 8.7 that you did in Table 8.6, you can see there isn't a marked difference between returns when the prior market movement was up versus down. This was the same conclusion reached when analyzing Table 8.5. So, concluding this section of the chapter, should market movements influence your individual stock gap- based trading decisions? For up gaps the answer is "no" based on the analysis of Tables 8.5 and 8.6. Down gaps are a bit more complicated. In general, returns are higher for long positions when the prior market move- ment has been down. Generally, you want to go long on a down gap expecting a reversal regardless of the prior market direction. But if the market has been strongly down over just the last 1, 3, 5, or 10 days, then the downward move of the stock may continue for the next 1 to 5 days. Summary This is the longest chapter and there has been much to digest. You began by looking at the 25 days with the highest number (553 or more) of gaps. All 25 have occurred since 2007 and 14 were in 2011. This is another way in which market volatility has been mani- fested. The underlying causes behind these high gap