Long term gap fill in SPY, corresponding SPX reference

In September, October and November SPY, (and the underlying S&P 500), have ratcheted up in waves. No, I am not going to even think about getting in to Elliot wave theory... I don't much care for that as it is VERY subjective. Each wave has peaked mid month and pulled back to bottom out at the end or beginning of each month. Of course a pattern like this can be taken advantage of but there are a number of factors that preclude even trying to place such a wager.

Going back in time a bit, October 3rd 2008, the market was in a downturn and as the market tested the SPY $110 mark on the Friday as it hit $109.68 and closed on $110.34.

It opened on Monday the 6th down at $107.15, a $3.19 gap or 2.89% and continued down more than $30 into March of 2009 to a low of $67.10... almost $40 on the money.

This gap is important as September past tested the bottom of the gap and pulled back. October tested the top of the gap and pulled back. November passed the top, basically closing the gap over one year later, and may see this $110 level as support for now.

If the pattern holds I see the $115 being tested by mid December, which puts my $115-$118 spread in serious jeopardy as it is a Dec 31st expiry. If it does not make it to $115 then I think that it may hit $113, pullback to the $110 support level again before taking off to the $116 level and may do so near the end of December...BAH! I may have to close the spread early in either case.

Of course we may see this level be a further test and a correction take place too.

Either way I will not likely set another spread trade right away in SPY as I wait for a bit while this shakes out. I could place a $1 or $2 higher spread, wait for the first trade to atrophy somewhat and close it to keep some credit and just step the spreads up to the EOM.

Hmmm... step spread trading in the same month to capture premiums in an uptrend situation...has some merit for future thought.

Here is the SPX chart for the S&P500 index. I noted that there is no gap on that Oct 6th morning BUT the level on the Friday closed at 1099.23...say 1100 for now and opened on Monday at 1097.56. The S&P dropped from there and returned the next day to test 1073 and dropped never to look back until testing 1073 in September...basically the exact same range as if it had gapped. Same pattern as the SPY, which it should be, just the lack of gap was noted.

The red lines are the Friday Oct 3rd 2008 close and the following Tuesday test of 1073 with the current correspondence

I like how the price is hovering about the 1100 mark after testing and crossing it, nice consolidation... begs the use of a directionless spread trade to capture the move which ever way it ends up going, as long as it goes quickly. The short Linear Regression channel is showing signs of a slowing down of the uptrend which is remaining within the longer term LR channel so far. Target moves, like in the SPY, are 1080 on the bottom and 1150 on the top.

Jeff.