Today is Tuesday May 18th and the markets moved out to the upside on the open +14 points on the S&P and about 100 points on the Dow.

We did see the push up that I thought would come as a follow through to yesterdays run up. The S&P traded more in line with the move up than the Dow. Each 1 point on the S&P is equal to about 10 Dow points. So as the S&P was up 14 points that would translate into 140 Dow points. I believe that is what I thought we see in this extension move up. Since we trade the S&P’s I should have mentioned it as opposed to the Dow. I guess I didn’t think the Dow would under-perform by so much today. Its not a big deal, it pretty much went down like I figured. We would hit resistance at that level and likely back off.

We hit those levels at the open as the final push up in the futures helped propel the cash index’s up to that resistance area. Since there was no where else to go, they sold it off and as I write we are off 13.50 S&P points on the futures and -96 in the cash Dow Index. It looks like it is trying to make a reversal run with just a few minutes to go before the close.

There is a nice consolidation taking place at the close and a break of that will push us up big or down big. S&P futures  currently at 1118. By the time I post this, the market will be closed but the move may carry over into the night trading.

Where do we go from here?  The market is getting squeezed between two points and the gap is narrowing. If you thought you saw volatility before, we are not done yet. I can only imagine how things are going to play out over the next week or two, but it is going to be wild. I would say that if you have a trending trading model, this is the time to bring it out. The market is not likely to be slow and quite, but the opposite. Fast and trending. The moves with the right setups, will go and last longer than most people expect, so get ready. If the volatility is to great, don’t feel like you have to participate. If you day trade better in a slower environment, wait it out. It is a good idea to be very selective in the trades you take. If you see the volatility moving your trading instrument all over the place, just wait. You will likely get stopped out, if you force a trade with a small stop. That will produce frustration and may cause you to force the issue. Be patient and selective. For others who can handle the swings, try and ride out the moves as you will be rewarded to for sticking with trending environment.

Tomorrow the new Investor Intelligence Market Survey will be taken and I won’t see it until Thursday evening. This will tell us if the drop off in sentiment is continuing or not. Last week we dropped off about 10 %, which is real big. If I remember we are at 47%, very close to a neutral reading.

In general, a move above 1160 will give the S&P futures a chance to retest the highs at over 1200. This is not the most likely, but leave it as an outside possibility. A break of yesterdays lows of 1112.75 will likely send us much lower and the possibility exists that we could take out the S&P lows of 1056 and or test them in some fashion. Don’t say it is not possible because that is what trading is. If the majority say that is not possible, it is not only possible, but probable. I am not committed one way or the other right now, but the pressure is to the downside and the bulls will have to shore things up quick and prove there strength, not just project it.

Last year, this is what I thought and said would happen. Back when the market was at the bottom, called for the market to retrace its losses and move up somewhere in the 50% to 62% retracement area(1110 to 1220). We did just that at 62% and rolled over to start the process of working off this move up, retracing back again at best to the middle of this move up, putting us at S&P 930 to 863. That is pretty much what I still think, but I am open to a false rally or a possible retest one more time? I have to leave that open and not force my opinion on the market. If I was so sure that the market was going to drop from here, I would not see or be prepared for the shake out move back up, if it happens.

This is all in the daily and weekly charts, just discovering the next big move of the market. It does not have a huge roll in day trading the swings, but it helps a little to see what could be coming.

* In today’s trading, I had another good day, but was only trading with 2-3 contracts. It still added up nicely and will post an equity chart and video of some of the action for those who care to see. Tomorrow I will give a trading lesson on “Reducing Stress associated with trading gains and losses”, so come back for that.

*Yesterday took about 12 or 13 trades, often scale out of my trades.