Today is a classic example of Fed manipulation over exuberance by one side that more often than not leads to a point of price instability. This concept is explained in Michael Covel's book "Complete Turtle Trader" as:
"one side or the other will win the battle of psychological warfare, exhausted side will give up. At these points there is a relatively small price difference between a trade working and not working. The cost of being wrong is lower."
Look at the area indicated at #1. Here the bears tried to push the price lower and as soon as it turned around and fell back inside the up trending channel we had an explosive move higher that could be completed today. The action we see now has gone over and made new July highs, overcoming significant resistance and while it looks bullish one has to ask "If I was in cash right now would I be a buyer here?" If the answer is no then either on the sidelines or short is the best strategy going into the weekend.
If the area is able to test the old area that was resistance and it holds then it becomes support and that would represent a safer long entry. If that support fails and the bears regain control of the market then we'll likely see a big move lower next week. 600 points moves over the course of a few trading days have become normal in this market and it makes it very difficult to trade.
My strategy going into next week is to hold my SPY shorts unless my timing signal says otherwise and that won't update until after today's close. I think if we close at today's highs (which is looking more like the case) than there's a good chance we'll see some market weakness early next week which will allow me to exit my shorts then. If you're interested in seeing my personal watchlist of stocks I'm considering on the long side, here's how you access that.