Carter Worth on Filling the Gap

• Joshua M Brown
• October 20th, 2009

Disclaimer: Nothing in the below post constitutes an invitation to buy or sell any securities nor is it supervised research.  Do not trade or invest based on anything you read here.

There's a very misunderstood principle of technical analysis that amateurs and dilettantes often use to justify foolish trades.  Carter Worth of Oppenheimer Asset Management put out a great piece this morning about the myth that stocks must always "fill the gap".  His commentary is, as usual, priceless:

From Money in Motion, October 20th 2009:

"Consider the gaps in the stock chart of Apple (AAPL) in April, July and October of 2004 (see orange arrows drawn) at $14, $16 and $21."

"Anyone short and relying on the superstition that “all gaps are filled”, should, in this instance, retire immediately.  Suicide may also be a consideration. These gaps, in principle, will never be filled."

Carter then goes on to show how this story ended for those shorts looking for gaps to be filled automatically.  Those orange arrows are put into a longer-term context:

Hard and fast rules like this "fill the gap" belief were made to be broken.

Full Disclosure:  Nothing on this site should be interpreted as a solicitation, advice or research.  Please see my Terms & Conditions page for a full disclaimer.

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Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

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