SPY fills the third gap

SPY moved back below 110 to fill the third gap, but this is not enough to affect the medium-term uptrend. After surging to a new reaction high in mid November, the ETF has been locked in a four point trading range since November 10th. This range extends from 108 to 112 with 110 as the focal point. Trading within the range is treacherous as the ETF bounces above and below 110 every week. The Bollinger Bands continue to narrow as volatility contracts. This is also reflected in the Bollinger Band Width indicator, which has been below 4 since November 20th. Contracting volatility does not provide directional clues. It does, however, suggest that SPY is gearing up for a volatility expansion. This means we could see a directional move sooner rather than later. But which way? Confirmed outside reversal days and volatility contractions led to pullbacks in late September and late October (blue lines). SPY currently sports a similar setup with Tuesday's move below 110.