SPY's Reversal From A Gap Open

Stocks have suffered steady selling pressure since the enthusiastic open. After gapping up more than 1%, SPY is in danger of closing near the day's low.

We've received a few questions about this and whether it suggests that we're more likely to see the typical post-expiration weakness that we looked at last week. So let's look at every time SPY gapped up 1% or more then closed in the bottom 25% of its intraday range.

The next table shows SPY's risk versus reward, its maximum gain during each time frame minus its maximum loss.

In both tables, SPY's returns were actually quite good, especially shorter-term. A month later, SPY was higher 26 out of 36 times and had an impressive average return (and risk versus reward). It has been especially positive over the past 15 years.

We wouldn't use today's reversal as a buy signal by any means, but does it further the case that we should see weakness during the rest of the week? No at all.