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| A sudden down gap after a strong rally generates fear among the crowd. It often ignites herd behavior that leads to considerably lower prices. The Hole-in-the-Wall gap recognizes this dynamic process in action. After reaching an intermediate high in an uptrend, a stock gaps down sharply as external force shocks the bull psyche and damages it. Volume on the decline exceeds the last rally impulse and flags a sudden new downtrend. Measure opportunity through the width of the gap, the participation intensity and the relative strength just before the event. Look for intense conflict from one side of the trend to the other. This should predict whether that market will rally back into gap resistance, or just roll over and head lower. |
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