Gaps as support and resistance
Gaps are often underrated for their ability to decide market direction and show movement in stock prices. Just yesterday I was looking at the market trying to decide how to trade the next days movements. Looking at a short term NASDAQ composite chart I decided that the gap through the 2430 support line was too dangerous to trade today, there was no way I was going to make any money as either the market would open up and I would buy into a top or the market was likely to drop heavily due to overhead resistance.
When the NASDAQ opened up today, the market quickly rallied to the 2430 line and was stuck, held back by the gap and the newfound resistance that kept the market down all day. Try as it might, the market was stuck in between a rock and a hard place. There were three more subsequent tries for a breakthough but the technical traders held their line at 2430 and kept the market from any serious advances.
The market surely proved the ability for gaps to prove as very strong support and resistance lines. It should be the strategy and policy of any trader to look for gaps either for support and resistance or even to show an overlying trend. Gap ups and gap downs say a lot about the opinion of the market and the strength, in every direction, that keeps it moving the way it does. The chart above is from this weeks trading, take a look at how strong the 2430 level was made by the gapping.