A large proportion of ETFs that had reversed to close near session highs on Wednesday, gapped down sharply yesterday and closed near session lows.

The market appears to be headed higher, as it has been consolidating for five consecutive days at the highs of the November 30 rally. However, the intraday volatility warrants caution.

For the fourth consecutive day, all of the major indices have been consolidating above their respective 200-period moving averages on the 60-minute chart. Typically, the longer this type of consolidation continues, the more likely the next move will be higher.

Despite the positive price action and positive internals, Deron Wagner is not inclined to classify yesterday's market session as an accumulation day. Over the past several days the market appears to be churning.

Bond market action in Europe suggests that volatility may still remain persistent in the stock market.

With the immediate fear of a European meltdown apparently in check, the broad market appears ready to make another move higher.

When violent moves against the predominant trend occur, Deron Wagner finds it prudent to step back from the market and re-evaluate market conditions.

If the market is able to hold up and rally for another day or two, many new trading opportunities should begin to emerge.

Yesterday's broad market rally was impressive but in the wake of a two-week selloff, it was far from unexpected. This bounce in the market should help to produce trading opportunities on the short side of the market.

Deron Wagner would not be surprised to see further selling on Monday, but he is waiting for a bounce in the broad market before he considers taking on potential short setups.