Understanding & Predicting Gaps

[jeff46902]

I have noticed many stocks gap up double-digit percentages in the morning (pre-market), however, not all stocks move in the direction of the gap (higher) intraday.  Many of them go down throughout the day to fill the gap, in whole or in part (known as gap-&-crap), giving a red candlestick on the chart.  I've even seen stocks where the highest trade of the day was during pre-market hours.

My question is: Is there any reliable way to predict which stocks will move higher throughout the day, and which ones will probably gap-n-crap?  Any special indicators I should look for before making the decision to buy?

What about stocks that gap up 1% to 5% pre-market?  Do those stocks usually perform better intraday than ones that gap up 20 or 30%?

Thanks!

[David Randolph]

These are nice questions jeff !

I don't like to buy stocks that gap higher at the open, specially when that gap occurs after a big rise - normally that's the exhaustion point, at least for the short term.

But when you have a breakaway gap, that is, a gap that is jumping above a resistance zone, that's a very bullish behavior - it shows a lot of strength and conviction from the bulls.

If close>open we generally have a bullish situation, because demand was stronger than supply during the day. If open>close that's a bearish situation because the stock was losing through out the day. It seems that it is easier for a stock to close>open when that open is not very high ... unless, as I said, the open is a breakout from a consolidation zone or breaking a resistance.

[saffeysite1]

I usually wait around 10:00 ish to see if the gap is going to go up or down.  If I see the gap go higher with increase in volume, usually good indicator.  If gaps and goes down with increase in volume usually it will stay down.