A disappointing day for the bulls. I will admit that I, for one, after the market action on Friday, expected the bulls to put up a much better show today. It seems like we are stuck in a mini range here (1065-1039 on S&P). 1040 remains the key level here on the S&P and a close below that will probably lead to much further downside. As I had mentioned last week, the more we test this important support level, the weaker it will get.
So, where do we go tomorrow? I will be damned if I know! After the market action on Thursday, one wouldn't have given favorable odds for the bulls to make the kind of comeback they did on Friday. But comeback they did, and in fact, closed at the day's highs. Bullish for the short term, right? But we all know what happened today. The only thing certain is that the overall momentum still lies very much with the bears.
And how does one trade markets like these? Simple, you don't trade them. That is, if you are a swing trader. 100 point moves are just fine if you are a daytrader and anything is fine if you are a scalper but if you are a swing trader, and a disciplined one at that (the only kind you should be), all you are going to end up doing in these markets is end up trading a lot and end up getting stopped out a lot.
In my early trading days, I had often read that most of the annual profits come from a very small percentage of the trades. And after trading successfully for a couple of years (the first one was unsuccessful!), I can vouch for the veracity of this statement. Pull the trigger only when the odds are in your favor and all the variables are in place, no matter what your trading system is. One doesn't have to catch the entire move i.e. call tops and bottoms in order to make profits, just the meaty part of the move. Another free piece of advice for markets such as these would be take your profits if you can, or at least partial profits and move the stops for the remaining position to break even.
Take care and good luck!