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Another All-Time Bubble High for the S&P 500

NEW YORK (TheStreet) -- Another all-time bubble high for the S&P 500 as the index closed at 1890.90 on Wednesday, up 5.38 points. The DJIA closed up 40.39 at 16,573. The Nasdaq closed at 4276.45, up 8.41 and the Russell 2000 gained 4.10 to close at 1192.

The unofficial SPDR S&P 500 ETF (SPY) volume was the lowest since the S&P 500 low last Thursday. Not only was the volume on Wednesday the lowest in four days, but it appears to be the lowest volume day since Jan. 22, 2014. 

The SPY volume on Wednesday, or lack thereof, was significant enough to mention. There is absolutely no buying conviction in this market right now. Most of the volume is coming from the algorithm programmed shorts that are covering their books at the highs because they shorted at the market lows last week.

It appears that the short hedge fund community that sold the S&P 500 lows last Thursday, threw in the towel today, and bought the all-time highs. I have said on many occasions now that the short hedge funds are notorious for doing that. Their timing could not be any worse.

Buying this all-time high is the absolute wrong strategy to have. The S&P and DJIA will now be well into overbought territory Thursday on a green open. The Nasdaq and Russell 2000 are not close to those overbought levels, but we have had a 2-tiered, out-of-sync market for a while now.

This market is going to roll over in the very near future, starting on Thursday or within a few days after that, according to my algorithm process. That is the same process that signaled the S&P low last Thursday. Caution is warranted right now. Buying this market at these levels takes on much risk. Having a risk-management process is very important right now.

The risk is so high that on a scale of 0-100, there are 6 points of upside vs. 93 points of downside. That is a risk that no trader or investor should be willing to assume.

We need the markets to have some profit-taking and to reset at lower levels. The trade (a 3 week or less time frame) and trend (a 3 month or more time frame) are still bullish. We are not bearish by any means, but there are better entries out there in the markets. There is no need to chase the bubble highs. Patience is the optimum word/strategy going forward on a short-term basis.

At the close of trading on Wednesday, I owned the Proshares Ultra VIX Short-Term Futures (UVXY) and had Kinder Morgan (KMI - Get Report) short.

At the time of publication, the author had positions in UVXY and KMI, although positions may change at any time.

his article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

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