An outside reversal day for SPY

The S&P 500 ETF (SPY) traded on either side of unchanged most of the day and then got hit with some late selling pressure in the final 20 minutes. Market participants were probably squaring positions ahead of Friday's employment report, which often produces a sizable gap on the open. There are two variables at stake here: the actual report and Wall Street's reaction to the report. Whatever the reaction, you can be sure the media pundits will fight a suitable reason within the employment report. Hmmm, that leaves us with one variable, Wall Street's reaction to the report. Let's keep focused on price action first and foremost. There will likely be a gap on today's open, but it is more important what happens after the gap. Remember the gap last Friday? SPY gapped down, bottomed in the first 10 minutes and recovered half the gap by 11AM. There was no follow through after the gap. With an outside reversal forming on Thursday, a gap down and long black candlestick would be quite bearish at this point. Conversely, a gap down and recovery would keep the bulls alive. Obviously, a gap up and long white candlestick would produce a bullish resistance breakout. A gap up and sell-off would leave the market in trading range limbo.