The Bottom Line
After closing out last week threatening to enter a crash or freefall scenario, this week’s price action had to come as a relief to market bulls. Buyers stepped in at the lows aggressively and staved off the selling at least temporarily.

However, the coast is not clear by any stretch of the imagination. The markets simply rebounded from an oversold condition, and traders need to be cognizant of the fact that the markets remain vulnerable.

The preceding two months have demonstrated that the markets can change character almost week to week, and traders must not get locked in to any specific outcome. Next week will be very telling, especially if the recent pattern changes. If the markets drift lower next week on lighter volume, I would be more likely to assume a bullish outcome as it would not provide relief for trapped short sellers while relieving some of the recent buying pressure.

If the markets head lower on higher volume, I would be more inclined to step aside as the freefall scenario or at least a low retest would likely be back in play. The last scenario is continued higher prices which would pressure short covering, but would also make it difficult to trade while respecting risk.

It is definitely a tricky environment, but the market will likely provide much needed clues soon.