Yesterday's late session reversal was quite bearish and will likely result in further selling pressure for the next few days. However, now that the major indices have rallied through important resistance levels, we are more inclined to take profits/cut losses on the short side a bit more quickly.

The current rally appears to be reaching a point of exhaustion but there are still only a few sectors that have begun to form reversal candles.

Despite his bearish leanings, last Tuesday's market reversal has Deron Wagner on guard for a potential bullish follow-through day in the market.

The market rallied on poor volume again yesterday. This suggests that a turn may be close at hand.

The abrupt nature of the current two-day rally could provide a quick shorting opportunity as many ETFs have found their way back near resistance.

If yesterday's low holds over the next three to five sessions, Deron Wagner anticipates a four- to six-week rally in the S&P 500 with the possibility of a move back to the 200-day moving average.

Given the destruction in the market yesterday, quality short setups are virtually nonexistent. The current market environment is now likely best suited for momentum day trading.

Now that the S&P is back within a few points of the critical support level of 1,120, it is likely that this mark will be tested on Monday.

Yesterday's price action among market leaders was not encouraging. Also of concern yesterday is that weak industry groups held the market up.