The markets finished the trading week with impressive gains across the board.

The DJIA closed the week up 3.36% for the week after gaining 580 points. The S&P 500 gained 66 points, or 3.27%, for the week, while the Nasdaq was higher for the week by gaining 3.56%, or 175 points. The Russell 2000 was the laggard on the week but still gained 2.49%, or 28.5 points. These gains nearly wiped out all the losses from the prior week.

The markets have a short trading week ahead of the Thanksgiving holiday, so it remains to be seen how they will react.

The tone for Friday's action appeared to be set early on when the European Central Bank President Mario Draghi said that "We will do what we must to raise inflation as quickly as possible." He then added that "low core inflation is not something we can be relaxed about."

So, what does he do? He devalues the euro again this morning, reversing what was a dollar down day yesterday. What he is really doing is perpetuating commodity deflation. And what is really happening with an appreciating U.S.dollar is that the dollar lowers import prices in the U.S. In essence, the U.S. is acting as a magnet for deflation. Those currency wars continue. Look for China to devalue the Yuan in the near future.

In the meantime, our stock market will be overbought on Monday with an upside open.

Even though our stock market had a huge upside this week, it appears that many stocks are not participating. One of my favorite leading stock market indicators, the Monthly New High / New Low Index just today, Friday, barely crossed over the zero line for the first time since November 9. We finally are showing more New Highs versus New Lows. After a nearly 4% upside move this week, there should be many more new highs versus new lows if most stocks were participating in this move higher.

Though the markets are short term bullish, traders need to be cautious and on the defensive. There are many negative divergences under the surface of this market.

Attached is a chart of the S&P 500 Equal Weight ETF(RSP) - Get Report that shows how tight the trading range has become again. The last time we had this narrow of a trading range was back in August and you can see what happened to the market shortly thereafter.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.