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Wednesday's Gains Are Thursday's Pain

NEW YORK (TheStreet) -- The stock indexes had a complete meltdown on Thursday. As I said in recent articles, I knew we would know within a day or two if the Federal Reserve-induced rally over the last two days was for real or just a relief rally within a bearish trend.

The answer to that question became very clear Thursday The DJIA got rocked for a 267-point drop to close at 16170.22. The S&P 500 lost 39.10 points to close at 1833.08. The S&P 500 is now within 10 points of a "trend bearish" signal. Remember, trend bearish is a three-month or longer time frame.

The real carnage is in the Nasdaq and Russell 2000 indexes. The Nasdaq closed down a whopping 129.79 points to close at 4045.10 and the Russell 2000 closed down 32.30 points at 1127.66.

Both indexes have been in trend bearish territory for over a week now. The question has been whether the DJIA and S&P 500 would follow. The answer is becoming very clear now. It is hard to imagine that the DJIA and S&P hold their bullish trend.

What is very noticeable now is the volume on Thursday. The S&P volume was over 148 million shares on Thursday. That is 48 million shares more than on Wednesday when the Fed had you believing all is well.

This stock market has some major issues to deal with now. From a trading standpoint, the last 24 hours has determined whether or not traders have a process that works and is repeatable. If you bought the stock market on Wednesday, you have some serious pain today.

As I have mentioned on numerous occasions, 2014 will be the year of volatility. You must have a risk management process that works. At the very least, you should be very cautious in your trading and understand that this market is now bearish over the next three months or longer.

Stocks that looked so good on the long side just 24 hours ago, stocks such as Apple (AAPL) and Facebook, (FB), gave back all their gains from Wednesday.

With so many technical trading levels broken on the downside, I do not expect this market to have an easy time regaining those support levels. Remember, support levels now become resistance levels going forward.

I entered trading Thursday with all cash. That proved to be the precise course of action. I did not buy anything today, but I am starting to see many large cap stocks on my buy scan. The "buy the dip" scenario has been broken. Patience and opportunistic trading going forward is key.

At the time of publication, the author held no positions in any of the stocks mentioned.

This 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
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