Price movement question

chuwang

New member
Sometimes when bad earnings or some other type of bad news is reported a stock will gap down on the chart. Sometimes over the next few days, the price will run back up to where it was before it gapped down where others will just consolidate and fall further. What is prevailing market psychology that causes the price to run back up as compared to the market psychology of a stock that just continues to tank after a big gap down ?
 

nizamshahii

New member
The gap which continues is called a "runaway gap". In the second case the gap closes. In true and fair markets there are no gaps, the last traded price should be the previous days close. Hence, gaps are also manipulative in nature, and often designed to trap the public and force them to sell.

When gaps close, it simply means that the insiders who took short positions beforehand are engaged in such levels of short covering after the gap down that their buying overpowers the public selling.
 

nizamshahii

New member
One of the most terrible gaps happened in Kingfisher airlines last year on the Indian markets - NSE and BSE. It gapped down 30 per cent, of course on some "bad news". But by end of day had recovered as manipulators bought at the lower levels and short covering by informed circles overpowered public selling on the open.
 

jimparker

New member
One of the most terrible gaps happened in Kingfisher airlines last year on the Indian markets - NSE and BSE. It gapped down 30 per cent, of course on some "bad news". But by end of day had recovered as manipulators bought at the lower levels and short covering by informed circles overpowered public selling on the open.

Yep, gaps can make for a very bad day. Sometimes it makes sense to hedge the position with options if yhou really want to hold the security.
 

Benji871

New member
Yes. The "Gap" is the difference between the previous days close and the next days open. When there are too many buyers (and not enough sellers) it would gap up and vice versa for a downward gap.

A 30% gap difference would be a nightmare if you are on the wrong side. No matter how conservative you are.
 
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