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Setups – Gap Down

Overview​

The Setups – Gap Down profile highlights stocks that gapped below the previous day’s low and meet strict structural criteria. Each result combines acceptable volatility, liquidity, and clean downside setups. To qualify, a stock must have broken below a key support area, emerged from a tight range, or triggered a 3-day breakdown — all confirmed by MarketAlpha’s AI.

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This profile is updated in real time and applies filters automatically to surface clean, liquid short-side gap-down setups with technical confirmation. It can be used across all market sessions, but is especially relevant during pre-market and early regular session hours.

Strategy Focus​

  • Identify short setups that gapped down below the prior day’s low with supporting structure
  • Filter for clean paths to target with few or no barriers to the downside
  • Highlight breakdowns from support, tight ranges, or multi-day base patterns
  • Focus on stocks that combine volume, volatility, and AI-rated short signals
  • Use group and theme alignment to support directional bias in weak areas
  • Prioritize setups with clean technical rejection and structural follow-through potential

Filters Applied​

The following filters are applied automatically in this profile:

  • Liquidity Rating > 70: Ensures stocks are liquid enough for reliable entry/exit, with sufficient depth and attention.
  • ATRP 14D ≥ 0.5 and Volatility (Month) ≥ 1: Filters for stocks with meaningful daily and intraday volatility — supporting downside follow-through.
  • AI - Alpha Strategy = Short: Only includes tickers where MarketAlpha AI has assigned a short (bearish) directional bias based on structure, momentum, and context.
  • AI - Risk/Reward ≥ 2: Includes only short setups where the expected reward is at least twice the calculated risk, based on support and target levels.
  • AI - Path to Target ≤ 1: Restricts to setups with no more than one barrier to the AI-defined downside target, improving the probability of clean continuation.
  • Gap Hi/Low (%) < 0: Ensures the stock opened below its previous day’s low — a defining condition for this profile.
  • Gap To Res/Sup Contains S, Tight Range = Yes, 3 Days BreakOut/Dn = Breakdown: Requires setups to meet at least one structural trigger:
    • The gap occurred under a major support level
    • The move began from a tight range
    • The breakdown followed a 3-day structural consolidation

These combined filters surface high-conviction breakdown setups where price has already shown weakness, volume and structure are aligned, and downside potential is clearly defined.

Metrics Used​

AI Strategy and Setup Quality​

  • AI - Alpha Strategy: Shows short-side bias for each setup based on real-time structure
  • AI - Risk/Reward: Calculates expected downside vs stop level, with only 2:1+ trades shown
  • AI - Path to Target: Counts support barriers between price and target — limited to one or fewer for clean downside setups

Price Action and Breakdown Context​

  • Change Pre Market (%): Detects early bearish activity before the open
  • Change From Close (%): Measures current session weakness relative to the last close
  • RSI Divergence 14 Days: Tracks confirmed or unconfirmed RSI divergence from price, signaling weakening momentum or breakdown follow-through
  • Universal Pattern Detection: Highlights setups confirmed by directional pattern alignment
  • Tight Range: Flags breakdowns from recent price compression

Volume and Liquidity​

  • Volume All Hours: Measures full-day volume including pre- and post-market activity
  • Relative Volume: Highlights setups trading with above-average volume during the session
  • Dollar Volume Rank: Prioritizes highly active tickers by capital flow

Sector and Theme Context​

  • Industry Rating 1 Day, Theme Rating 1 Day: Reveal group and theme weakness to support short setups
  • Industry Rating 1 Year, Theme Rating 1 Year: Add long-term context to thematic underperformance
  • Relative Strength 1 Day, Relative Strength 1 Year: Measure weakness relative to the broader market

Fundamentals and Timing​

  • MarketAlpha Rating: Composite technical and fundamental signal score
  • EPS Rating, Sales Rating, Profit Rating: Identify companies with fundamental deterioration or underperformance
  • Accumulation/Distribution Score: Highlights institutional selling or distribution over the past quarter
  • 52 Week High (%): Tracks distance from long-term highs, helping assess remaining downside room
  • Next Earnings In Days: Shows how close earnings are to help gauge risk of holding into events

Default Sorting Logic​

Results are sorted by Dollar Volume Rank (ascending) to prioritize the most liquid and institutionally active gap-down names. These setups typically offer clearer momentum and easier execution.

Practical Use Cases​

  • Spot high-quality short setups that gapped below key support zones
  • Scan for clean breakdowns with minimal support barriers to the AI target
  • Use Multi-Charts to evaluate structure, volume, and trend strength visually
  • Build short watchlists around weak themes, groups, or post-earnings reactions
  • Combine price gaps, volume signals, and AI structure to validate downside continuation
  • Identify early-session weakness for intraday or swing short entries