Understanding Stocks

LET’S GET TECHNICAL: INTRODUCTION TO TECHNICAL ANALYSIS 125
NASDAQ Daily
Volume
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Figure 11-14 Nasdaq head and shoulders
easy to see the stock patterns, but in the heat of battle they are not that
obvious.
Gaps
12/07/02
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Gaps are simply open spaces in the stock pattern. For whatever reason
(perhaps breaking news in the middle of the night), there was no trading
at a particular price level and the stock jumps—there is an order
imbalance between buy and sell orders. Gaps are significant because
they indicate strong buying or selling demand. Figure 11-15 shows an
example of a gap.
In Figure 11-15, notice the gap or open space between the first Tuesday
closing price at 4:00 p.m. and the first Wednesday opening price at
9:30 a.m. On the Wednesday opening, IBM is said to have “gapped up”
from its $85 closing price to $86 with no trades in between. Notice the
strong volume in the stock on the gap up. In the short term, probably
because of positive news that was released after the market closed, buy-
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