My pre-market comments stated:

"As of 9:10 AM EDT, the indices are showing small gaps down, mostly in the U-CO zone

Risk Factors

• Gap Guides: assuming a gap DOWN, the Gap Guides show average/neutral win rates and profit factors for most indices and zones today (indicating that there are some market condition and pattern and seasonality risks in play for the normally high probability U-CO zones)

  • if gapping UP at the open in the futures, the ETFs will likely be gapping down (due to their higher relative closing price on Friday) and would cause the opening directions to be mixed and in opposing directions which is a risk factor
    

• Gap Size:  small size of gaps increase impact and risk of slippage and execution

Supporting Factors

• Gap Guides: if gapping UP, most indices show a good setup today
  
• Supportive Patterns:  opening above high of 2 days prior is a positive for gaps down; plus per the weekend gap wrap, a gap in either direction on a Monday following 4 higher daily highs is a positive for fading:  if down: 18/27 and 1.3 pf, if gapping up: 12/17 and 1.3 pf
  

Bottom Line:

Like Friday, the Gap Guides show a neutral to slightly positive setup for gaps down today. A gap up looks better, but will likely be fighting small gaps down in the ETFs.  As such, a reduced position size trade in either direction seems to be a reasonable play IMO. TRADE AT OWN RISK! Scott"

GAP WRAP

Today's setups were very similar to Fridays with small gaps down, OK but not great Gap Guide probabilities, and multiple supportive patterns. Though the markets are short-term overbought this info is already built into the Gap Guides and they showed these risks, though present, did not make the U-CO zone "un-tradable." They simply made them riskier - as such I reduced my position size.

And even though I am at Sunset Beach, NC with my family this week, I traded these gaps because they met my criteria and I always trade my setups when possible - even when travelling or on vacation. The reason is that the name of this game (probability-based trading) is to trade as many of the high probability setups as possible and let the long term averages reward you. Plus, frankly, summer-time gap trading is normally profitable and like today, the gaps often fill quite quickly.

I was filled long at the open at 1071 and scaled out about 60% at the gap fill area of 1072.5 and held the last 40% for just inside of Friday's highs at the 1074.75 area. The result was a nice, fast win that averaged about 2.5 pts of profit per contract (~$125 per).

Now I am off to the beach to show off my wave-riding skills to my young daughters...G'day!

(note: I will not be posting gap wrap videos this week - I will resume next week when back in the office)