Invest and Trade Profitably with Jon Johnson

With relationship to charts could you tell me your thoughts on “GAPS”. Do gaps have to be filled?

August 30, 2000

There is an old adage that all gaps must be filled. We know that a stock can’t run up (or even sell) without having to come back and test some support (or resistance). Often when this happens a stock or index will work to fill a gap on a normal consolidation of the gains. Ultimately most gaps will be filled, but it can be months or years later in strong moves. As an example, back in 1998 the market gapped up but did not fill the gap until the September 2001 low, and it did not sell just to fill the gap the move back down was part of a much larger market collapse after an historic run up. The market didn’t “seek the gap” but just sold through it as it went lower. Consolidations are normal after any strong move and don’t necessarily result from a gap. Sometimes the consolidation will be a full test of the gap or sometimes just a partial test. Whichever it may be, waiting during a strong upside trend for a stock or index to completely fill the gap can result in missing some remaining upside moves.

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