Wednesday saw those short hedge funds signal the turn to the downside on an intraday basis. Most of those short hedge funds had completed their covers early on with the market slightly green at the open. In the end, the DJIA closed down 101.47 points at 16613.97 after being up slightly at the market open. That green open was enough to push the DJIA closer to the extreme overbought condition that I mentioned in Tuesday's article. The S&P 500 closed down 8.92 at 1888.53.
The Nasdaq closed down 29.54 at 4100.63 and the Russell 2000 closed in the red, down 18.02 at 1103.14. The Nasdaq loss could have been much worse if it were not for the momentum stocks such as Netflix (NFLX), and Yandex (YNDX). Those stocks were able to close on the upside. Facebook (FB) was up most of the trading day before closing in the red and Apple (AAPL) closed in the green fractionally after being much higher intraday.
The momentum tech stocks were the last area for the short hedge funds to cover their positions. This was very entertaining to watch if traders and investors have an understanding of what to watch. Those same technology stocks are now in overbought territory and, in some instance, extremely overbought.
Leave it to the hedge funds that work in unison to cover at the highs. I suspect that we will now see those tech stocks head to the downside on Thursday or Friday at the latest.
Once again, where has all the volume gone? Is this market being traded by only the hedge fund community? I have no idea but it seems that the small retail trader is non-existent.
As mentioned on many occasion, this stock market in 2014 is not for amateurs. The market can quickly suck a trader or investor in and, before you know it, pull the plug and leave a person holding the bag. It is extremely critical to understand what the market is telling you and understand the Trend Bearish and Trend Bullish time frames.
The DJIA and S&P 500 are Trend Bullish. The Nasdaq and Russell 2000 are Trend Bearish. These are time frames of three months or longer. Heed the signal and act accordingly. If you want to be bullish on a sector, trade or invest in the Select Sector Utilities ETF (XLU). That sector is Trend Bullish.
On Wednesday, I covered the final piece of my Bob Evans (BOBE) short position for a nice gain. At the close of trading, I started a short position in Yandex (YNDX). My internal algorithm has YNDX with an extreme overbought signal within a Trend Bearish condition. This process is documented at www.strategicstocktrades.com.
At the time of publication, the author was short YNDX.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.