First things first, there are two gaps and gaps close. They don’t always close right away, remember the bullish October gaps, it took them months to close, however these gaps could close much sooner.
A second issue is the nature of the selling which is futures driven, if you only count the loss during the day session this market hasn’t really given up much these last few days. [Looks as though some of the retail money joined the chorus. [Fear of what happens in the overnight futures……….] Witness the anemic or flat money flows. [these finally turned down and appear resolute, but it might take days to turn this ship] This is the great repricing, the owners of stock are [or were] sitting on the sidelines while the lower daily trade volume serves to settle the price. That’s all pretty orderly by definition.
A third issue might be the nature of the exogenous news. Inflation, a few tenths of a percentage point from where it was last month (does that meet the definition of deteriorating conditions?) The tech sector is obviously taking the heat on this one, and that is unusual, not often that they throw the leadership overboard. Usually bear markets begin after a “narrowing” of leadership but the lack of faith in the leadership suggests something else is happening here, THE GREAT REVALUATION, ROTATION AND REALLOCATION may be under way.
In the context of what exogenous event is most responsible, inflation, Ukraine or the Jan. 6 hearing, my thought is this is all about the domestic political divides in America. Corporate America does not like the rip between state and federal jurisdictions. Franchise America thrives on uniformity. This is weighing heavily on a consumer economy. First gap closes at 390 second at 402. Then we have to wait and see if the market resumes the downtrend. And then onward to November.
For what it’s worth the market gapped higher in October, and didn’t settle those gaps for several months. If we fill all those gaps we should be at the 50dma, where we were in October. Then there was sort of a test of the highest more recent gap and that test actually failed, or succeeded in the sense that prices closed on that gap and moved higher, which is confirmation of trend, only they didn’t close ALL the gaps so the question remained open.
One long term shift I imagine happening in the stock market is a shift toward all futures all the time. ETFs have effectively commoditized the various illiquid asset classes. The implications of having an all futures market is a subject for thought. It could happen, and several decades ago they were offering various stock futures. Futures in IBM for instance. That new market never got off the ground but the implications are still valid. The beauty of an all futures system is that each buyer is matched by a seller, so price discovery is not distorted by anything other than future value versus current price. When I see those gaps I think FUTURES.
This sort of quick flurry in activity will probably play out, whether that ends the bear market is difficult to say. I wouldn’t be in this market now other than to trade the day session.