The S&P 500 is constantly gapping up (i.e. today’s OPEN is higher than yesterday’s CLOSE). The S&P gapped up 33 out of the past 42 trading days (2 months).
Some investors and traders see this as bearish sign. They see this as “market manipulation” in which central banks and institutional investors use the overnight low-volume to artificially propel stocks higher.
Let’s put aside these conspiracy theories. What does history say? Here are the historical cases in which the S&P gapped up at least 33 of the past 42 trading days.
- January 11, 2018 (current case)
- September 5, 2014
- April 10, 2014
- October 29, 2013
This is a very limited sample of 3.
September 5, 2014
The S&P 500 began a 9.8% “small correction” 2 weeks later.
April 10, 2014
The S&P began a 9.8% “small correction” 5 months later.
October 29, 2013
The S&P began a 6.1% “small correction” 2.5 months later.
You can see that gap ups are becoming more and more common. They weren’t common during previous bull markets. There’s a simple explanation for this.
With increasing globalization, European and Asian investors are becoming larger and larger forces in the U.S. stock market. Their buying U.S. stock market futures on the overnight (their daytime) causes the U.S. stock market to gap up. There’s nothing sinister about gap ups.
More importantly, you can see that a lot of gap ups isn’t a bearish sign for the stock market in the medium-short term. This is a useless indicator. Investors and traders should ignore gap ups.