After last week's sharp selloff, the market likely needs a period of quiet consolidation to allow setups to develop.

Severe selling pressure in commodities, in large part due to an increase in margin requirements in the futures market, seems to have spilled over into equities.

Small and mid cap stocks continue to show relative weakness to large cap issues.

Market leadership was tested Tuesday, but it would take a sharp follow through day to the downside before Deron Wagner would entertain the possibility of a more significant reversal.

Deron Wagner is sticking to his plan of taking profits quickly as bullish sentiment has reached an extreme across many sentiment indicators.

The market has been demonstrating bullish resiliency as it refuses to sell off since last week's reversal. Several days of sideways action or a modest pullback would not be unexpected given the recent advance.

Now that the Nasdaq, DJIA and S&P 500 have all found higher ground, the odds favor the market moving solidly higher from current levels.

Since the Nasdaq is well established as a leading market indicator, Deron Wagner would prefer to see the tech rich index take the leadership role.

Given last week's impressive performance it is not unusual to see the type of price and volume action exhibited by the market Monday. Light volume accompanying price consolidation following a strong rally is generally considered a bullish signal.

Due to extreme readings in the ten investor sentiment indices that Deron Wagner follows, he is carefully managing position size and exposure to the market.