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DJIA, S&P 500 Trend Bullish vs. Nasdaq, Russell 2000 Trend Bearish

NEW YORK (TheStreet) -- The indexes on Wednesday continued their torrid rebound from the market selloff last Thursday and Friday. The DJIA and the S&P 500 have nearly regained all their losses from last week in three trading days.

The DJIA has gained nearly 400 points since Monday and the S&P has gained 46.62 points. The Nasdaq has gained 86.5 points while the Russell 2000 gained 20.33 points this week.

So, what does this all mean? It means that the DJIA and the S&P 500 are now back into Trend Bullish territory while the Nasdaq and the Russell 2000 index are still firmly in Trend Bearish territory. Remember, Trend is a three-month or more time frame, according to my algorithm process.

Thus, we have now re-entered a two tiered market environment again, with the DJIA and the S&P 500 vs. the Nasdaq and Russell 2000. If you have been a follower of my articles, you cannot have two different markets for any length of time. It just does not work.

From a trading standpoint, traders must understand that volatility has been a theme that I have written about in 2014. You are witnessing that stock market volatility play out right now. This stock market has no memory from day to day.

This holiday shortened trading week is also playing a role. I fully expect trading volume on Thursday to be very light. Wednesday's trading volume was the lowest this week, well below the 50-day moving average in the S&P 500 Trust ETF (SPY).

The algorithm machines are in total control of this market, especially this week. From a trading standpoint, I have been very cautious with new buys. Next week should be a different story as traders come back from the holiday.

How this stock market will play out over the next week is anyone's guess. I am sure that the old Wall Street pundits are confident that the stock market correction that took place last week is over and the markets will resume their bullish trajectory. I am not so sure of that. My internal algorithm numbers do not confirm that bullish stance until the Nasdaq and Russell 2000 indexes are in Trend Bullish territory.

The most important criteria for trading this stock market is to have a trading process that works and sticking to it. Having a process that got you out of the market last week at the highs and has you cautiously re-entering the market to buy extreme oversold stocks according to your discipline is critical. I have such a process and you should also. Patience and opportunistic trading is of utmost importance.

I added a new position with a buy of Live Deal, (LIVE) at the end of trading on Wednesday. I may be a day or two early, but it is extremely oversold and I will add Thursday on red if necessary.

At the time of publication the author had a position in LIVE.

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

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