SPY Gap Repetition Breeds Familiarity
… and “Familiarity Breeds Contempt.” Let’s take a quick pure price look at the recent five overnight gaps in the SPY – S&P 500 during the oozing uptrend that is taking place in the holiday bullish seasonality in the US Equity Markets.
I often use pure price charts to discover any specific repetitive pattern in price action that I might otherwise miss when looking at a chart with lots of indicators.
In this way, you can discover the ‘character’ or behavior of a market.
Starting with December 21st (not shown on left), price has gapped higher six days in a row.
With the exception of December 21st and December 24th (the day before the Christmas holiday – which is seasonally very bullish), price has suddenly fallen lower after the gap and filled the gap (falling just shy of a full fill on the 22nd) almost as quickly as it formed.
To me, this is evidence of “popped stops,” which occurs when a key resistance level is broken and short-sellers push the market higher. Were this true bullish aggressive buying, we would see no gap fills.
Volume is also declining during this price rally. That’s not the sign of bullish strength either.
However, none of that matters as long as price continues to rise, and the pattern – almost like clockwork – has repeated for 5 of the last 6 trading days (which would be 5 of 5 if we exclude the December 24th half-day).
The second part of the pattern is the afternoon ‘ooze’ or upward creep into the close. It’s almost like a two-step dance the market is weaving.
Step 1: Gap up in the morning. Immediately fall after the gap.
Step 2: Creep Upwards all day into the close.
That’s not to say that the pattern will repeat forever – it clearly will not – but as long as the pattern does repeat, it has provided a roadmap and trade-able edge to those who have perceived it – to those who have stepped back and observed the character and repetitive pattern in price.
Indicators have their place – but it is equally if not more important to look directly at price, observe repeating patterns, and trade those with the expectation that the pattern might repeat, even if it is in conflict with our favorite indicators.
And, if anything, we can file this under “very interesting.”
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
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SPY Gap Repetition Breeds Familiarity
