SPY ripped from $632 to $651 on Tuesday — a +2.9% rally that had everyone calling the bottom. Two days later, it gapped down to $646, VIX surged +13% to 27.7, and the rally looks like a textbook bear market bounce.
The Pattern:
Tuesday (Mar 31): SPY gaps up, runs from $632 to $651. Massive volume, shorts covering, FOMO.
Wednesday (Apr 1): Flat. SPY holds $650 but cannot push higher.
Thursday (Apr 2): Gap down to $646. VIX surges. Rally unwinding. Bounced to $657 intraday but rejected — exactly at the resistance level fintwit called.
Why This Pattern Matters
In bear markets, the strongest rallies happen in the sharpest downtrends. A +2.9% day is MORE common in bear markets than bull markets. The pattern:
1. Sharp selloff creates oversold conditions
2. Violent short-covering rally (+2-3%)
3. 1-2 days of consolidation
4. Gap down resumes prior trend
5. New lows within 1-2 weeks
We are at step 4 right now.
The VIX Signal
VIX at 27.7 — elevated but not extreme (35+ = capitulation). Rising VIX on a gap down with orderly selling, not panic. Orderly selling can persist for weeks.
Oil at $111 (+11%) — largest daily move since 2020. Iran escalation + Hormuz Strait risks. When both equities AND gold sell off simultaneously, it usually means forced liquidation.
What I Am Trading
Bear call spreads: sell premium above the market while VIX is elevated.
– Closed META 615/625C for +$89 profit today (40% of max, 2 days held)
– QQQ 600/605C still working — $16 cushion to short strike
0DTE today: NO-GO. Thursday = SPY 0DTE day but VIX +13% and gap down = directional risk too high.
Levels to Watch:
– SPY resistance: $657 (rejected today), $660 (Tuesday high)
– SPY support: $640 (swing low zone), $632 (gap fill)
– VIX > 30: reduce all positions. VIX < 25: consider adding.
For the rally to be real: SPY needs to hold $640 and reclaim $655 this week. Failure targets $625.
Bottom Line
Tuesdays rally was a short squeeze, not a trend change. The gap-up-stall-gap-down pattern is textbook. Trade the trend: sell rallies, sell premium, keep stops tight. Not at capitulation yet.
NFP tomorrow (Apr 3) is the next binary event. Strong = rally attempt. Weak = next leg down. Position accordingly.
Disclaimer: Not financial advice. These are my trades and analysis, shared for educational purposes.