Freaky Friday Struck Again — Another SPY Closing Ramp Or Gamma Squeeze

Please take a look at the following charts, and see if you can spot a recurring pattern. They show the price action of the SPDR S&P 500 ETF (SPY) on the last trading day of each of the prior three weeks. Pay special attention to the last hour of each. I am paying special attention to SPY because it represents the market’s main benchmark, and as an ETF it has options that expire after the close each Friday.

SPY 1 Day Price Chart, 4/9/21

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SPY 1 Day Price Chart, 4/9/21

SPY 1 Day Price Chart, 4/1/21

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SPY 1 Day Price Chart, 4/1/21

SPY 1 Day Price Chart, 3/26/21

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SPY 1 Day Price Chart, 3/26/21

Bear in mind that the middle chart is actually from a Thursday, since Friday, April 2nd was the Good Friday market holiday in the US.

More specifically, here are the charts that show the final hour of each of those trading days:

SPY 1 Hour Price Chart, 4/9/21, 15:00-16:00

(Click on image to enlarge)

SPY 1 Hour Price Chart, 4/9/21, 15:00-16:00

SPY 1 Hour Price Chart, 4/1/21, 15:00-16:00

(Click on image to enlarge)

SPY 1 Hour Price Chart, 4/1/21, 15:00-16:00

SPY 1 Hour Price Chart, 3/26/21, 15:00-16:00

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SPY 1 Hour Price Chart, 3/26/21, 15:00-16:00

All advanced sharply in that last hour of the trading day, but the pace was clearly the most aggressive on March 26th. At the time, I considered that to be a “gamma squeeze” at the end of a two-week period that saw a choppy selloff that climaxed a day prior:

SPY 10 Day Price Chart, 3/15/21-3/26/21

(Click on image to enlarge)

SPY 10 Day Price Chart, 3/15/21-3/26/21

While I found the pace of the rally to be startling, I didn’t find it completely irrational. Traders were speculating that there could be portfolio managers rotating out of equities ahead of the end of the first quarter. That selling failed to fully materialize, and in the midst of a bull market it would not be unusual to see a snapback rally that followed a failed selloff. The rally took SPY back to the highs that it reached on March 17th, though it did so in a remarkably quick manner. When a reversal occurs, it can do so for many reasons. When it accelerates during the last hour of a trading week, the usual cause is traders racing to cover expiring short options positions. The following chart illustrates how this could be the case:

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