Soybean gaps have unfinished business

November 10, 2014 07:14 AM

For technicians, gaps are in the category of time-tested rules of the market. Markets tend to fill them one way or another, sooner or later. They even fill them on weekly continuation charts that were caused by the expiration of one month and the picking up of the next. Hogs are notorious for this, no matter how wide the gap.

And a certain gap setup can even help to give you the potential projection of a move. This is not very common but does occur. Let me explain.

There are four gap types.
(1) The common gap is normally filled shortly after it is created. It is the one that occurs most frequently.
(2) A breakaway gap occurs when the market breaks out from normally sideways action. You know it is a breakaway gap if it is not filled within a couple of weeks.
(3) The third kind, and it always follows the breakaway gap, is a measuring gap.
(4) And, finally, there is the exhaustion gap. It occurs either near the top or bottom of a major move, depending upon whether it was a bull or bear market. 

So if you have a series of three unfilled gaps in a major move, whether up or down, you are looking at a breakaway gap, followed by a measuring gap and then the exhaustion gap, in that order. It is from this series of gaps that you can determine the potential extent of the move.

And that is what we have in the soybeans on their weekly chart. The week of June 16 they gapped down after consolidating around the 1500 level for almost two months. That gap has not been filled (the breakaway gap). They continued selling off until the week of July 7 when they gapped down again (the measuring gap). It has not been filled. Then during the week of Aug. 11, they gapped again (the exhaustion gap). That has not been filled but is close to being filled because beans have been rallying since the bear market low made at 904.

By measuring the high prior to the breakaway gap to the measuring gap you can computer the potential of the move. Doing so with the weekly soybean chart, the bean bear move had a potential to at least 1043. The market actually went to 904 before stopping so it over extended the projection, which they normally do, in this instance by 139 points. 

So according to the time-tested rule of gaps and this particular gap setup, the bear move is over with and the market should be in the process of setting up to fill those gaps. The exhaustion gap would be filled 1071 1/4. The measuring gap would be filled at 1297-1/4. The breakaway gap up at 1410. 

So if gaps follow their time tested rule, this series of three unfilled gaps on the soybean weekly chart is suggesting that the bear move is over with and that the rally we have been witnessing is not a rally to set the market up for new lows but a market that has made a major low.

About the Author

Judy Crawford is a senior broker at Zaner Group. Raised in rural Minnesota, Judy went to the University of Minnesota and received a BA Degree in language. She specializes in technical analysis of the markets and write a market commentary entitled “Market Update” that is available to readers via e-mail. Sign up at her website: