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Does Your Risk Manager Tell You When to Sell?

NEW YORK (TheStreet) -- I have been pounding the table about the short hedge fund community and how it is notorious at covering positions at the market highs. As a matter of fact, on Wednesday those hedge funds were close to finishing their covers at the all-time market highs and the market would fall.

How was that for timing? The DJIA finished down 167.16 points at 16446.81 while the S&P 500 index closed down 17.68 at 1870.85. Volume on Thursday was the largest in both indexes since early April. Downside volume never matters according to old Wall Street pundits. I am here to tell you that it does matter, especially when the down volume greatly exceeds the up volume on green days.

There are still pockets of growth stocks holding up reasonably well. The reason for that is because the hedge fund consensus is still positioned for the long growth scenario. They have it wrong and will, at some point, throw in the towel when they realize the growth stocks are not seeing much growth in 2014. For now, they are still trying to buy those momentum growth stocks that are in Trend Bearish mode. So sad.

The "slow growth" signal in the economy is everywhere, from the 10-year bond to the slow-growth utility sector performance and the outperformance of the low-beta stocks in 2014.

The Russell 2000 index is now down almost 10% from its March 4, 2014, highs and down 6% YTD. This matters, folks. This is a growth index. Old Wall Street is not mentioning this fact as long as the DJIA and the S&P 500 are going up. Take notice. The Russell 2000 closed down another 7.15 points at 1095.99 on Thursday.

The Nasdaq was down 31.33 points at 4069.29 on Thursday. The Nasdaq is now down 6.6% from its YTD high of 4357.97 on March 5. 2014.

Does anyone ever tell you when to sell? Most Wall Street pundits do not. I am here to tell you that traders and investors need a risk management process. Selling is just as important, if not more important, than buying this stock market. 2014 is a very difficult trading and investing environment, as I've been telling you.

My internal algorithm numbers are now showing all four major index numbers together again. The two-tiered market is getting closer to becoming one market again. The Russell 2000 and Nasdaq are Trend Bearish. The DJIA and S&P 500 are still Trend Bullish but the gap is closing. This is a three-month or more time frame.

Again, join me at to find out more about my process and to enjoy a free chat Friday.

On Thursday I covered most of my short position in Yandex (YNDX) early on for a nice gain. I put that short back on at the end of day when YNDX turned green. I also started a long position in EXCO Resources (XCO). My algorithm numbers flagged an extraordinarily oversold condition.

At the time of publication, the author was short YNDX and long XCO.

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

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