There are two distinct swing lows in place that the S&P must hold or the market is likely to see another significant selloff.

The most recent two-day rally is being led by market laggards. This type of price action must be taken into consideration when evaluating the bearishness or bullishness of a market.

In order for the market to stabilize and set up the next rally it is likely that a capitulation day of 4-5% across all major indices is needed.

Market consolidation near the two-day low on Friday is the type of price action following a big move which often results in a continuation of the prevailing trend.

A capitulation day of 4-5% across all major indices is likely needed in order for the market to stabilize and set up the next rally.

Yesterday over 800 stocks closed lower by more than 4 percent and commodities are now moving in the same direction as stocks. That's often an early sign that the market is capitulating.

Yesterday's sharp reversal does not bode well for market bulls. If we see a follow through day on Wednesday, another round of heavy selling appears likely.

With the Fed meeting and the possibility that another round of quantitative easing is on its way, Deron Wagner is cautious about taking on new positions and wouldn't be surprised if the market were to take another leg higher.

Deron Wagner remains on the lookout for signs of churning and the formation of reversal candles as they provide early signals that the market may be running out of steam.

As long as institutions continue to sit on the sidelines, it is unlikely that any abrupt moves higher in the market are sustainable.