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TheStreet Open House

Risk Is Everywhere and We're Closer to the End of This Market Run

Stock quotes in this article: SPY, FB, YELP, WDAY, DATA, LNKD, YNDX, CTRP, QQQ, EPAM, YNDX, ABC

NEW YORK (TheStreet) -- Another day of the short hedge funds covering at the all-time highs. This is becoming rather amusing to watch.

What is even more amusing is to see the S&P 500 Trust Series ETF (SPY) volume close trading at a new 2014 low of 58.3 million shares only to see the after-hours hedge fund trading take it to 71.8 million shares. Can you say manipulation?

The DJIA closed Tuesday up 69.23 points to 16675.50 while the S&P 500 closed at 1911.91, up 11.38 points -- another new all-time high on air. The Nasdaq finished up 51.26 at 4237.07 and the Russell 2000 closed up 16.01 points at 1142.20.

The Russell 2000 index is still in Trend Bearish territory while the DJIA, S&P and Nasdaq are in Trend Bullish territory. Trend is a three-month or longer time frame.

It has now become very important for me to discuss the degree of risk that is prevalent in this market.

According to my internal algorithm numbers, the large-cap sector -- stocks with a market cap of $4 billion or higher -- is signaling 32 stocks with an extreme, overbought condition versus three with an extreme oversold condition. That is a 10-1 ratio. I am speaking of stocks such as Facebook (FB), Yelp (YELP), Workday (WDAY), Tableau Software (DATA), Linkedin (LNKD), Yandex (YNDX) and Ctrip.com (CTRP). These all have an algorithm number of 99 or higher out of 100. The extreme oversold have a number of under 1. These numbers can be found at www.strategicstocktrades.com.

These short hedge funds have pushed these stocks to the limit and traders and investors need to understand the risk that goes along with trying to mimic these hedge funds and buy these momentum stocks.

I am neither a bull nor a bear as a trader. But I do have a risk management process that allows me to know when to buy and when to sell. It signals when stocks are extreme overbought and when they are extreme oversold. Traders need to have signals. If not, you are nothing more than a momentum chaser that buys high and sells low. Not a good recipe for success.

I am here to tell you this market has a bubble-like feel to it and the PowerShares QQQTrust Series (QQQ) will be the first index to signal extreme overbought with a green open on Wednesday. Heed the signal. This market is near a downturn, and that downturn has the ability to be severe with no trading volume.

A market that is at an all-time high on no volume is a market with bubble-like conditions that has been created by the Federal Reserve and its policies to inflate -- policies that are failing miserably right now. It has given us a stock market bubble with a burning currency.

On Tuesday, I covered most of my short in EPAM Systems (EPAM) that I added to this morning on green, only to see it trade red this afternoon. I booked a 3% gain. I added to my Yandex (YNDX) short with a 99.99 algo number and added to AmerisourceBergen (ABC) short with a 99.99 number.

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

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

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