Gap Fill?

I have received more emails this morning thus far about whether the gap will be filled in the major averages and whether the gap "has" to be filled, so it's easier for me to try to address it here than in 20 different emails.

First, no, there's nothing that says a gap "Must be filled". In fact, before HFT (High Frequency Trading), Japanese Candlesticks and gap analysis was one of the most effective ways to discover true resistance and support as gap resistance/support was some of the best you'd ever find, however, when things become obvious in the market, the market adjusts just as a casino in Vegas would if their one-arm bandits were paying out too much. The crowd that doesn't adjust is retail, it has been well over a decade since Technical Analysis has been used against traders and they still do the same thing over and over.

A gap that is not filled (in a situation like this or a worse gap) is called a break-away gap (after a prolonged downtrend it's called an exhaustion gap, similar to the concept of capitulation. The break-away gaps were rarely filled and certainly not any time soon, it may have taken months or even years to fill them and they were an excellent give-away of a market breaking, in large part Wall St./HFTs have eliminated that edge.

As far as, "Will the gap be filled?"We don't deal in certainties, we deal in probabilities, the probabilities alone say yes just because they have been so relentless in filling gaps, especially since 2009.

As far as what we know right now...It looks like it, but as I posted earlier with the more angular reversal pattern and the more rounding pattern, the only difference really is time and that is what Wall St. needs, it's actually volume, but that volume is accrued through time.


Charts...

 After an opening TICK reading extreme of -1350, we've been sitting in a -750/+750 range which tells us nothing, this is why I created my custom TICK indicator.

Here's this morning, you see intraday TICK improving so the chances of a gap fill (probably before I finish this post, but the concepts are still useful) are higher, higher probabilities. 

What matters is what you do with the move.

 The DIA which was the worst looking, but moved in line this morning from yesterday's intraday deterioration has two things, a 2 min positive divegrence which is continuing to build and notice the "reversal process" there, it didn't have a built in positive on the open like the IWM did, it has to build the divergence, thus the reversal (rounding) process. However, there's not much beyond this, which helps us understand 2 things, first before we were even talking about gap fills, the two charts of a reversal of this move, one more angular and one more rounding, the difference is time, a gap fill is time.

 DIA 3 min, note where distribution was strong, in to price strength (if we can call it that, but the highs on the chart), then in a range where we most often see accumulation/distribution it led negative almost all day yesterday.

At 5 mins, the same thing, leading negative in to the close and in line on the 5 min. A move up in the DIA would likely leave the 5 min where it is as there's no positive and it's not likely to build out that far considering the distribution, why distribute just to buy back what you were trying to get rid of?

Thus we'd have an even worse divergence here.

The IWM 1 min looks like a gap fill, remember though, this is an intraday chart used for tracking intraday price, this is not where we find institutional moves, they are on 5 min and up charts.

 The QQQ 1 min is simply marking time, however the market averages typically move together, there may be differences in relative performance as we have seen in a big way this week and last with the IWM, but they tend to move directionally which is interesting if you look at the Q's from a longer perspective.

 This 60 min chart shows institutional movement, note that it went leading negative right as the range was crossed and in the SPX 1900/SPY 190 area, exactly where retail would be buying a breakout move, thus the reason we had anticipated such a move in May before the 15th's bear flag.

The continued leading negative is showing us continued stronger probabilities, but look at price, a VERY flat , obvious resistance level, if the gaps are filled, that resistance level would be taken out and SQQQ would be a key position to be looking in to (long).

One of the strategies Wall St. seems to employ is conditioning... in other words, lets call this morning "The dip", retail has been conditioned to "Buy the dip", this is helpful for distribution purposes now, but for making money on short positions set up, retail continuing to buy bigger dips like one to SPX support around $1900, leaves retail holding a very big bag when the market drops, this is the reverse of a short squeeze, retail starts taking losses which causes more to start taking losses and whalah! You now understand why bull traps (head fake move) create downside momentum and why fear being stronger than greed makes declines fall about 5x faster than markets rally (look at the 2002/2003 to 2007 rally and the ensuing decline from the 2007 top through 2008 and to the lows of 2009, about 5 times faster and it took back all of the bull market and then some.

Filling the gap isn't the question, although I know many are eager to see a solid down day, how you use the filling of the gap at this stage is the question.

I have a feeling next week's F_O_M_C will take care of the rest.