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A New Trading Month Brings the Same Old Stock Market Conditions

NEW YORK (TheStreet) -- With the arrival of the month of September and the end of summer vacations, some things never seem to change in the stock market.

The DJIA was down 30.89 points on Tuesday to close at 17067.56 and the S&P 500 lost 1.09 to close at 2002.28. The Nasdaq was higher by 17.92 at 4598.19 and the Russell 2000 finished up 5.12 to close at 1179.47.

For those of you who were expecting to see volume pick up with the return of the big New York traders, you were sadly mistaken.

The S&P 500 Trust Series ETF (SPY) volume came in at just over 71 million shares traded on Tuesday.

This should finally put an end to the discussion that once summer is over volume will once again return to normal.

I have been saying all year that the hedge funds are in complete control of this market and volume. If you do not believe that fact now, you have no understanding of how this stock market truly works today.

In addition, in the most recent five-day period ending Aug. 20, equity fund flow trends rebounded marginally with domestic stock funds breaking a 16-week running outflow. However, the intermediate term trends are still intact with fixed income netting $4.9 billion in net new flow in the most recent five-day period, almost a 2-1 ratio versus the $2.6 billion allocated to equities. Bottom line, domestic stock funds saw an outflow in 16 of 17 weeks, according to the Investment Company Institute.

The question now becomes when will the hedge funds decide to start selling? That is the $60 million question.

The Nasdaq, S&P 500 and Russell 2000 are still in overbought territory. The DJIA is the only index that is not overbought. As a matter of fact, the PowerShares QQQTrust (QQQ) is in extreme overbought territory.

There is nothing to buy on my oversold scan of both small-cap and large-cap stocks. There is a massive amount of overbought stocks on the scan for short consideration, according to my algorithm process.

I will continue to add to my inverse ProShares UltraPro Short QQQ (SQQQ) position. I added a new short position on Tuesday. TeleNav (TNAV) has an extraordinarily overbought signal of a 99.99.

My process dictates that I buy stock with an extreme oversold signal and short with an extreme overbought signal. That is what we have currently.

At the time of publication, the author was long SQQQ and short TNAV, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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