Gap (Price Gap)

A significant jump in a stock's price between the close and the next open, with no trading in between.

What Is a Price Gap?

A price gap occurs when a stock's price jumps significantly between one trading session's close and the next session's open, creating a visible "gap" on the chart where no trading occurred. Gaps are most commonly triggered by earnings announcements, major news events, or analyst upgrades/downgrades released outside market hours.

Types of Gaps

• Gap Up: The stock opens higher than the previous close. Common after earnings beats or positive news.
• Gap Down: The stock opens lower than the previous close. Common after earnings misses or negative guidance.
• Breakaway Gap: Occurs at the beginning of a new trend, breaking through a key support or resistance level. These gaps rarely fill.
• Exhaustion Gap: Occurs at the end of a trend, often signaling a reversal. These gaps typically fill (the price returns to pre-gap levels).
• Runaway Gap: Occurs in the middle of a strong trend, confirming momentum. Also called a "continuation gap."

Earnings Gaps

Earnings season produces the most significant and frequent gaps. The average S&P 500 stock gaps about 4-5% on earnings day. Some high-growth companies gap 10-20% or more. On EarningsShot, predicting whether a stock will beat, meet, or miss is essentially predicting whether a gap up, flat open, or gap down is coming.

Do Gaps Always Fill?

The conventional wisdom is "gaps always fill" — meaning the price eventually returns to the pre-gap level. While this is true more often than not for small gaps, large earnings gaps driven by fundamental changes in a company's outlook may take months or years to fill, if ever.