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Short-Covering Hedge Funds, the End Is Near for You!

Stocks in this article: SPY YNDX ABC

NEW YORK (TheStreet) -- The short hedge fund community continued to cover their short positions at the market highs on Thursday. The DJIA finished up 10 points at 16543 and the S&P 500 closed up 4.46 at 1892.49 after briefly flirting with the closing all-time high of 1897.45

The Nasdaq finished the day up 22.80 at 4154.34 while the Russell 2000 closed at 1113.87, up 10.24.

Without sounding like a broken record, the S&P 500 Trust Series ETF (SPY) volume matched its yearly low volume in 2014, trading 60.8 million shares. That matched the Jan. 22, 2014, volume. Once again, where is all the buying conviction in this market if we are near the all-time highs?

There is something wrong and out of sync. As a matter of fact, the volume on Wednesday, an up day, was down 9% against its one-month average and down 31% against its three-month average. It was much worse on Thursday, another up day. The volume on up days is dramatically lower than on down days. It matters.

From my perspective, this all comes back to the short hedge fund community that sells the market lows and cover at the market highs. This is, quite frankly, pathetic. I will never understand why these hedge funds act in unison and sell the lows and buy the highs. It is no wonder why the majority of hedge funds have a difficult time beating the market returns.

Buying high and selling low never seemed to be a recipe for success.

With that said, this is the market that we are dealing with as traders and investors. As long as the Federal Reserve has the market's back and continues its inept monetary policies, this type of market may last a bit longer.

But make no mistake, it will end sooner than you may think. When it does, the Fed will not be able to do anything about it or control the inevitable outcome.

Just make sure you traders and investors have a risk management process that works.

As of the Thursday close, the Nasdaq has been the only index that is coming close to an overbought signal according to my algorithm numbers. If the Nasdaq opens green Friday, the index will be well into overbought territory.

The DJIA, S&P 500, and Russell 2000 have been lagging well behind. I do not expect those indexes to reach overbought before the markets turns lower. The market leading up to the Memorial Day weekend has been controlled by the momentum-chasing hedge funds. I do expect this chasing to end by next Tuesday. There are just too many of the momentum growth stocks in overbought territory, and in many cases extremely overbought territory.

On Thursday, I continued to add to my short positions in Yandex (YNDX) and AmerisourceBergen (ABC), as both are signaling an extraordinarily overbought condition. Join us for a free chat Friday at if you are experiencing performance issues in 2014.

At the time of publication the author was short YNDX and ABC.

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

>>Read more: Exclusive: United Pilots to CEO - 'Lead or Get Out of the Way'

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