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TheStreet Open House

Thar She Blows, Volume 2: Time to Closely Read the S&P 500 Signals

NEW YORK (TheStreet) -- For the second day in a row, the stock indexes followed through to the downside on Friday. Following a massive selling spree on Thursday with heavy downside volume, the stock indexes saw massive sell volume on Friday. The S&P 500 Trust Series ETF (SPY) volume came in at over 185 million shares traded Friday. That is a combined two-day selling volume of over 368 million shares.

The DJIA lost another 70 points on Friday to 16493.37 and is now down 0.50% for the year to date. The S&P 500 lost 5.52 points to 1925.15. The Nasdaq was down 17.13 to 4352.64 and the Russell 2000 lost 5.21 points to 1114.86.

Read More: 4 Stocks Warren Buffett Is Selling in 2014

The S&P 500 is now "Trade Bearish" and "Trend Neutral," according to my algorithm process. Trade is a three-week or less time frame and Trend is a three-month or longer time frame. The Russell 2000 is down 4% YTD.

These trade and trend signals are extremely important for any trader or investor. This is all part of the risk management process that I write about in these articles. To know where the indexes are allows traders to act accordingly with respect to the stock market.

If old Wall Street pundits continue to advise that the market is acting bullishly in 2014, it is time to follow new advisers.

The Select Sector Utilities ETF (XLU) continues to be one of the leading sectors in 2014. The XLU is still up 9% after the recent profit taking. The SPDR Gold Trust (GLD) continues to perform well and is still up 7% YTD. These are facts.

One further comment about the SPY volume on Thursday. The volume was up 28% versus its one-month average. And guess what? It was a down day. As I have been saying all year, the volume accelerates on the down side and decelerates on the upside. If old Wall Street continues to tell you volume does not matter, it is time for new followers. It does matter and it is not different this time.

In sum, the key takeaway from the last two trading days is that volatility is back and volume is important.

With all the negativity comes some positive signs. The DJIA is now extremely oversold. Iif the indexes can open to the downside on Monday, the other three major indexes will be in oversold territory. I am looking for that intraday turn to the upside early next week and it should provide for some huge upside. So, get your buy orders ready. It is too late to sell.

On Friday, I sold my Monsanto (MON) and Platform Specialty Products (PAH) longs for nice gains again and covered my Caterpillar (CAT) short for a nice gain. In other words, I was three for three on an ugly down day in the markets. Again, this is all available at www.strategicstocktrade.com.

Read More: 10 Stocks Carl Icahn Loves in 2014

On Friday, I started new long positions in Church & Dwight (CHD), Intel (INTC), Johnson Control (JCI) and Invensense (INVN).

At the time of publication, the author was long CHD, INTC, JCI, and INVN, although positions may change at any time.

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

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