The most important consideration in determining market direction is price action. It's not indicators that measure overbought or oversold. That said there and interesting oversold pattern in the 3-day RSI and the McClellan Oscillator. It is not a typical pattern I discuss and a full explanation is beyond the scope of an evening update, but I'll summarize it like this...

The markets got to a very oversold level in late November, and the bounced dramatically. Now the oversold readings of both the 3-day RSI and the McClellan Oscillator have reached levels that we would look for a bounce in the market if we were in a bullish mode. We're not in a bullish mode, but very often this first pullback to a moderately oversold level is a set up for a rally.

IMPORTANT - In order for a rally to begin the price action must turn bullish! I know that sounds obvious, but too many traders will read what I just wrote and think I sad it's time to buy regardless of what the market does - WRONG.

The price action also has a very interesting pattern which is most clearly visible in the SPY and DIA. The Q's and IWM do not have it as pronounced, but the market action is similar. I'm referring to the fact that in the last 5 days, and 6 of the last 7 days, the SPY and DIA have closed lower than they opened. This pattern in easily seen in the candle charts. The significance is the fact of 5 days in a row. Look back at how often the SPY has demonstrated this pattern. You won't find it very often and it is an indication of a market that needs a rally even if the eventual direction is down.

MOST IMPORTANT. 3 of the 4 market watch charts (SPY, DIA, QQQ) are coiled like a spring with 3 days of consolidation. The fourth, IWM, has either started to bounce or is putting in a very nice bearish flag. As a result, the 3-day range in the consolidating indexes and Friday's range in the Q's is the most important consideration for this week's market direction.

As a result of the markets 3 day consolidation pattern, a break down from the range is very bearish. A break up could indicate that the oversold condition is resolving itself to the upside.

Furthermore, the fact that patterns described so far are occurring right at the 50-day moving averages in 3 of the 4 market watch charts (QQQ being the exclusion) creates the potential for the move between now and year end to be a significant one!

First targets for a move up or down over the next week or two would be the November highs and lows.

While we'll take trades from the long and the short side, the market condition relative to this range will have a huge impact on my bullish or bearish bias.