July 28, 2017

June 29th Gap Fill Ahead?

Several of the major indices I follow (SPY, QQQQ, and DIA) have moved ever closer to closing the gap that was established on 6/29. IWM, well, it is a different story. The divergence from the other major benchmarks has been somewhat puzzling, but I still think the gap will eventually close before any significant decline occurs.

In yesterday’s post I mentioned several reasons why I think the market was headed higher over the short-term.

  1. The large gap in all of the major indices (plus almost all sector ETFs) from 6/29 has yet to close
  2. All of the major indexes have moved into a short-term oversold extreme (just look at the RSI (2) readings)
  3. Read the first link from my aforementioned links. Serge is right on in my opinion.
  4. Lastly, the start of the second half brings in retirement funds, etc. Furthermore, the Nasdaq’s 12-day mid-year rally begins in late June and conveniently ends on July 13th. According to the Stock Trader’s Almanac the average gain for the 12-day mid-year tech rally is 3.2% versus the 0.1% for July as a whole. Moreover, the Almanac states to watch for “huge market gyrations” after July 4th “both up and down”.

Today the market rallied hard and has moved into a short-term overbought state so I would not be surprised to see a slight pullback before the short-term advance continues. However, I also would not be surprised to see a gap up at the open that closes most of the gaps (the one exception IWM) from 6/29.

If a gap higher does occur I plan on taking off most (if not all) of my positions – IWM included. Right now I have a nice gain, so I want to lock in some profits, particularly if the 6/29 gaps are closed.

This is the levels I am looking at for closing out my established positions:

  • SPY – $107.14
  • IWM – $63.91
  • QQQQ – $44.81

I hope all of you have a wonderful evening.