Last week we saw the market become quite volatile with large swings but on a weekly basis, it didn't end up losing that much. That has to do with the fact that it is pretty oversold right now. With a light economic calendar and the beginning of the wind down on the earnings front, a quieter week probably lies ahead for Wall Street. The hammer reversal on Friday likely leads to a respite in the selling for now on the short term time frame especially when combined with the completion of the AB=CD pattern down on the Euro. There remains an AB=CD pattern down on the general market indexes however, and that leads me to believe that the hammer candle isn't a reversal that changes the short term trend but instead, just a respite.

Overnight, both Asia and Europe were mixed to lower. Guess Wall Streets late rally didn't impress them. My quote system is all screwed up this morning showing large percentage gains in foreign currencies, metals etc. when the charts so basically flat. Hope that changes before long as it's hard to keep straight in my head.

After a precipitous drop, a good short term trade is to remove some more short exposure on a further trade lower today into the reversal candle with the idea that you have to add it back if the lows of Friday or violated. The respite should take us up for enough to make the trade worthwhile in the coming days. If we can peel those profits at a better price point, they will be much easier to add up higher.

Here is what's on the economic news front. The Bernanke testimony should be interesting along with consumer sentiment at the end of the week.

My thoughts a week or two out is more pain if not earlier so you have to take profits on shorts with the idea of quickly putting them back on and profits/cut losses on longs on a decent rally if it develops. We need two or three weeks of trading to decide what the intermediate term timeframe will yield. Until then, it's short term trades mostly while holding core positions.