After gapping up 5 days in a row, ES finally posted a gap down this morning. This raises the question of whether there remains a propensity to gap higher, or whether the run prior to the gap doesn’t mean anything going forward. The study below examines this.
The numbers here all appear to suggest a mild upside edge. The Profit Factor is the most appealing stat, as overnight gains have nearly doubled overnight losses in total. To get a better idea of how the edge has played out over time I produced a profit curve.
I find this curve to be encouraging for the bull case. The move from lower left to upper right is certainly choppy, but it has been persistent. In all, this setup seems to hint we are in a market that may be favoring gaps up, and this could be worth keeping in mind as we approach the close. I certainly do not believe this apparent edge merits a trade on its own. But it could serve to support a bullish case if the Odds Sheet (and perhaps other EdgeFinder studies) also point higher.
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