Modest Gaps Higher From High Levels

I’ve shown several times before that when the market is already at a high level and it gaps up large in the mornining there is a quantifiable downside edge for the rest of the day. The large gap up incites profit taking. See the link below for an example:

http://quantifiableedges.blogspot.com/2009/08/large-gaps-up-from-1-month-high.html

But what of times like now when the makret is at a new high, but the gap up is only modest? Below is one way to look at it.

It appears when the gap up is of a moderate size a downside edge no longer exists. And while a large gap up would have had me excited about shorting this morning, this study suggests no substantial edge at all.

[[T_F]]Data Leak Prevention – Data Security Solutions – Information Theft Protection, Detection and Prevention Software Productstracefusion_signature=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[[T_F]]

I have traded professionally since 2001. From January 2003 through February 2007 my bi-weekly column "Rob Hanna's Putting It All Together" appeared on TradingMarkets.com. I have been conducting quantitative research and designing trading systems - mostly focused on short-term edges since 2004.