Today is Friday May 7th and the market filled the gap down after its massive price reversal yesterday.

Just a comment, before I start. I had a very nice article I wrote in yesterdays post, but I see it never got uploaded. It was a good recap of all the action in yesterdays market and why I thought it dropped like it did. Discussed market sentiment and how it played a big role in the drop. I pains me to think the thousand word article is gone. Well, I can not begin to reconstruct it, but the only thing I will say now is, the Market Sentiment numbers did hit the trigger point of over 55% by getting to 56% as they were released on Wednesday morning before the market opened. That right there gave the institutions a good enough reason to take the opposite position as they often will do when a market extreme is reached. This extreme has called the last three big moves in the market just as of lately. The first top in the market for January, the bottom in the market in the first week of February and now the secondary top just earlier this week. All have been met with selling and or buying almost on Que as those number extremes have been met. I won’t carry on with it, but I had been warning and talking about just this thing for weeks now and my readers know that.

So, the market sentiment numbers did it again, calling larger market turns of 10% or greater. It is a good timing tool for the large directional changes that take place in the market. A simple little strategy for making money with this is to sell index options in the opposite direction of the current signals generated. As they will never get in the money because the price is moving in the opposite direction. If you sell deep out of the money calls at a turning point as the market is ready to drop, they will expire worthless for sure. When you add time decay to the factor, they will dry up faster than a grape lying in the hot sun. Just a passing thought for my readers. You can get the link for that sentiment survey service in the resource section of my website. I have been following this little know tool for about 25 years and I have seen it work like nothing else for calling large directional changes. They publish the numbers for free, but release it two days after the fact, Thursday night. Having the information on Wednesday morning would have made a world of difference. I don’t advocate to blindly follow those numbers, but it can give you insight into the current price action on the daily and weekly charts and can lend itself to your overall day trading strategy. There are about 3 to 5 good signals per year and it is very timely overall.

I posted a nice real time video of my trades yesterdays and I see it never made it up with the original article, so I will post it here again, for anyone who wants to watch it. After hearing myself on it, I notice myself saying WOW a lot, pretty funny, because the movement was off the hook. Anyway, the first video is from yesterday and the second one is from today. Both are profitable with yesterday having several trades all gains, I did have only one small loss for 6 ticks on small size, the others were much bigger with one trade good for 12 S&P points. This is yesterdays video below.

The second video is from today, in which I only took one trade for about a 6 point average profit. I scaled out of three contracts mostly all in the same area and that was it for me. I have moved my stop to 6 ticks to adjust for the larger volatility but in this trade I did not need it. I did enter a touch early as far as the indicator I have up on the screen, but I don’t really follow the indicators like a text book. I trade the price and the indicators at times tells me, if it agrees or not. I would be well served as well as anyone else who would just follow the indicators I have up on the screen, but it is not the best way to trade the markets. You need to understand “Why” the indicators are saying buy or sell. That will help you to better understand what and why you are doing what you do, if that makes any sense.

Many times the indicators can help you see what you can not “Yet” see with your eyes what you should or could see in the future. With time, you will be able to see the same thing and that is what you want to achieve. With all that said, trading the indicators can help in the beginning and it can be a general road map to help you with timing. Lets face it, trading is all about “When” to pull the trigger and then managing the trade after that. I have other tools and indicators that help with that, that I do not show. This is really all I can show to let you see, that there is a reason to go long or short. Often, trading programs are difficult to understand and it becomes hard to know when to buy or sell. This is one of the reasons I am trying to show my readers when to go long or short. Again, I am not saying what the indicators are up on the screen, but it is a fraction of the total and it is only a glimpse of what is possible.

You still need to know how to trade and handle the pressure of putting on a position. Having good timing tools can help increase your confidence, but the rest of the process is then knowing and learning why you will go long or short and which trades are better than others. When watching the video below, you only need one or two trades to make a good day. I only took one trade late in the day, that was plenty. The market is not usually this busy, but the process and the signals are the same. This works great with stocks, ETF’s as well as commodities and of course E-Mini Futures. So take a look and if you have questions don’t hesitate to ask.     Have a great Weekend.