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Stock Indexes Rose From an Intraday Oversold Signal, as Expected

NEW YORK (TheStreet) -- As expected, and mentioned Friday, the stock indexes were all down on Monday morning. That created an oversold signal in all the major indexes. The DJIA was extremely oversold. After a couple hours of trading the indexes had an intraday turn to the upside.

By the close, all four major indexes were well into green territory. The DJIA closed higher by 75.91 points to 16569.28 and the S&P 500 was higher by 13.84 to 1938.99. The Nasdaq finished up 31.24 to 4383.89 and the Russell 2000 index was higher by 9.96 points at 1124.82.

Read More: Warren Buffett’s Berkshire Hathaway Has the Most Cash in America

By no means does this mean the correction in the indexes is over. This was purely a relief rally from an oversold condition. My algorithm numbers are precise in recognizing and signaling these types of oversold and overbought conditions.

Without these types of indicators, the risk management process I utilize would not work. These internal algorithm signals have allowed me to have a success rate of over 90% since inception over one year ago. The process can be found at

Where the markets go from here is the important question now. This relief rally can certainly extend for another week or so or until the market index numbers become overbought.

Make no mistake, the Russell 2000 is still "Trend Bearish" and the S&P is "Trend Neutral." So we trade accordingly and do not get to aggressive on the upside unless we get the signal.

There are many moving parts right now in the marketplace. The European markets are in a "Trend Bearish" condition but the Chinese market is in a "Bullish Trend" and diverging from both the U.S. markets and the European markets.

And one final indicator that was market bullish on Friday was the fact the short hedge funds had moved back into a net short position. The S&P futures net short position had moved back to a -41,210 contracts. In other words, the short hedge funds were short at the market lows in unison. You have seen me write about this phenomena before. Hedge funds short at the lows and cover at the highs.

Read More: TheStreet Posts Higher Second-Quarter Sales as Advertising Soars

On Monday, I sold my Johnson Control (JCI) and Invensense (INVN) that I purchased on Friday for nice gains. I continue to be long Intel (INTC) and Church & Dwight (CHD). I also added new positions Vertex Pharmaceuticals (VRTX)and Owens Illinois (OI) on an extraordinarily oversold signal. I also purchased Flowers Food (FLO) on a channel break higher.

At the time of publication, the author was long INTC, CHD, VRTX, OI and FLO 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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