Gap Over 200-day SMA!

What History Says Comes Next

Apr 09, 2026

If you’re a regular reader of this newsletter, you already know I pivoted to a more bullish stance last Tuesday. That day delivered a powerful gap-and-go with massive volume and strong follow-through that closed near the highs.

Since then, I’ve stayed in cautiously bullish mode. While the dips weren’t deep, there were solid opportunities to add exposure at key levels last Thursday and this Tuesday. I added to positions in AMD, AMZN, GOOGL, MU, RDDT and the Tuesday Top Trade feature, HOOD on those days. Wednesday’s explosive gap was the big payoff.

I took profits on all my swing trades at the open. The gap was enormous, and it made sense to lock in gains. QQQ had just gapped directly into its 100-day SMA after a nearly 3% move above the 200-day SMA! I figured if I was in profit taking mode, other market participants might be as well.

QQQ Daily Chart

Now that we’ve seen a very strong bullish pop, the natural question is: where do we go from here?

As I always do after wild price action, I went back through the charts to study similar historical setups. I’m still operating under the assumption that this rally is a B-wave, likely to form a lower high or double top before sellers step back in and we see another period of volatility. That said, I’m open to that being wrong, and for my intermediate-term swing trades, it doesn’t really matter.

That B wave view is based on many factors including:

Heavy resistance and distribution near the prior highs on QQQ, SPY, and leaders like NVDA
Historical chart patterns
Average drawdowns in midterm election years
Elliot Wave Analysis

That said, B-waves can be extremely tricky. They can even extend as high as the 138.6% extension of our A wave (pushing into new all-time highs) and trap breakout buyers before the eventual C-wave decline. With that in mind, I’m willing to adapt my thesis and trade the levels right in front of us, regardless of the bigger picture.

My simple, time-tested framework remains: bullish above the 200-day SMA, bearish below it. Right now, that framework says be bullish, at least until the 200-day SMA is violated.

SPY Daily Chart

Historical Analogs

I studied every instance where SPY gapped up above its 200-day SMA. I paid special attention to setups where the 100-day SMA was still above the 200-day but beginning to curl lower. I also was looking for instances following a large bull market.

The most similar historical example occurred on October 28, 1999. The parallels are striking (I’ve discussed this analog before).

In late 1998, we saw a ~20% drop followed by a powerful rally that gained 54% off the lows roughly a year later. In 2025 saw a similar ~20% drop, followed by a 45% rally that topped about a year later.
In 1999 SPY corrected just over 13% after breaking the 200-day SMA. In 2026 the SPY corrected just under 10% after breaking the 200-day SMA.
In 1999, SPY closed up ~3.5% on the gap day. Wednesday’s gap closed up 2.55%.
Both featured a downward-sloping 100-day SMA sitting above a still-rising 200-day SMA.

Following that 1999 gap, the market continued higher for another 148 days before eventually forming a major top and entering the dot-com bust. The 1999 gap saw almost no retest, it opened, ran, and never looked back, making new all-time highs in under 20 days.

Across all historical gap-ups above the 200-day SMA, the general path has been higher. Out of 11 instances, 7 ended up being bullish, and in many cases, very bullish. While there were 4 gaps that fail to make new highs, this type of move has more often than not led to higher prices and new all-time highs.

SPY 1999 Analog

My plan moving forward:

I will look to buy dips into gap fills with stops below Tuesday’s candle.
As long as the 200-day SMA holds, I’ll maintain a bullish bias.
A quick close back below the 200-day would be quite bearish and could lead to a retest of recent lows.

Yes, sometimes it really can be that straightforward: bullish above the 200-day SMA, bearish below. Check out the video below where I walk through the 11 similar gaps in SPY’s history and what they could mean for current price action.