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Trading This Market Means Do Nothing and Sit on Your Hands

NEW YORK (TheStreet) -- There comes a time when trading the stock market means you must do nothing and sit on your hands. If traders have a proper risk management process that gives signals as to when they should be buying or selling they will be able to navigate around this stock market without getting hurt.

This last week of May is one of those such times. The short hedge fund community continues to push the momentum stocks to extraordinarily overbought levels. You may ask yourself why do these hedge funds continue to do that. The answer is quite simple: Because they can.

Wednesday was another typical trading day that saw a low volume move. This time, however, the indexes all closed down on the day. The DJIA lost 42.32 points to close at 16633.18 while the S&P 500 lost 2.13 to finish at 1909.78. The Nasdaq was down 11.99 to close at 4225.08 and the Russell 2000 was down 5.52 points to close at 1136.68.

The Nasdaq is still well into overbought territory according to my internal algorithm process. The Russell 2000 is slightly overbought while the DJIA is not. The S&P 500 was in overbought territory before finishing lower on Wednesday.

An important indicator not receiving much air time from business media or Wall Street pundits is the 10-year bond. The yield has slipped below 2.5%. Folks, this a "growth slowing" indicator for the U.S. economy. This is a preview before the release of the GDP number on Thursday. This fresh year-to-date high in price suggests a terrible GDP number.

As a matter of fact, this number may be a signal the Federal Reserve may consider slowing the tapering process of QE.

There are many indicators suggesting this economy has some serious issues. The model the Fed is using to determine policy is simply not working. It may be too late now to save this economy. No matter what the Fed does now, the damage has already been done. It is now a question of when the panic occurs.

This bubble that has been created by Fed policies has been a disaster. The dollar has been burning right alongside the Fed's attempt to inflate. This sounds like disinflation to me. The small retail buyer in the stock market has been gone since the 2008 housing crash. The hedge funds are the only players.

The Fed has created another stock market bubble that will ultimately come crashing down in the not too distant future, specifically 2016.

So I continue to use my internal algorithm numbers to alert me to specific conditions. I have been mainly shorting the large-cap stocks on the extraordinarily overbought signal that the momentum hedge fund chasers created. This is only because I cannot find any large-cap stocks to buy with my algo process at www.strategicstocktrades.com.

On Wednesday, I covered most of my Yandex (YNDX) short that I added in Tuesday's trading for a 3% gain. I added to my EPAM Systems (EPAM) short and AmerisourceBergen (ABC) short. Both have an extraordinarily overbought condition. I started Market Vectors Gold Miners ETF (GDX) as a long.

At the time of publication the author was short EPAM and ABC and long GDX.

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

>>Read more: Tim Cook Just Took Apple Away From Steve Jobs

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