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Fight! DJIA and S&P vs. Nasdaq and Russell 2000

NEW YORK (TheStreet) -- Another wild ride in the markets on Tuesday. The DJIA (^DJI) stayed in the green all day, while the Nasdaq (^IXIC) and Russell 2000 (^RUT) were deep in the red during the day before turning green again. This is a schizophrenic stock market right now. From day to day, market traders have no idea what to expect right now. By the close of trading, all the indexes were in the green, led by the DJIA again, which closed at 16,367.88, up 91.19 points -- 0.56%.

Algorithm-programmed machines are trading this market between the S&P Daily Trading Range. The individual, the retail trader, is being whipped around minute by minute.

As mentioned, the Russell 2000 index and the Nasdaq were both red and in oversold territory at one point on Tuesday. This allowed both indexes to reverse course and continue higher during the day. The Russell 2000 closed just about flat, down 0.02% for the day. The Nasdaq was up .19% at close. 

The DJIA and the S&P 500 (^GSPC) were not close to oversold, however. The S&P closed up 0.44%.

So, we have a two tiered trading market. The divergence between the Nasdaq and the Russell vs. the DJIA and the S&P is concerning. How long this can last is anyone's guess. Month end mark-ups are just around the corner.

One thing is for sure. This stock market is confused, but refuses to breakdown. A simple rotation from one sector to another is taking place that will allow this market to reset itself for a move higher.

The Trade, which is a three week time frame or less, and the Trend, which is a three week time frame or longer, are both bullish. A trader needs to continue to trade this market from a bullish point of view. Trying to anticipate a bearish turn in this market will prove to be a costly mistake. It seemed that many market pundits were expecting this market to roll over to the downside on Monday. The stock market sometimes seems to go against the majority of participants.

As was mentioned here in Monday's column, there were many long, oversold stocks that warranted buy consideration. Being long on Tuesday proved to be the proper course of action.

Two stocks that were mentioned in Monday's column that I owned at the end of the trading day were Xylem (XYL - Get Report) and Zynga, (ZNGA - Get Report). Both were sold on Tuesday for huge gains.

As long as the market is showing us more buy candidates vs. short candidates, we will continue to trade from the long side.

A couple of economic trends that are worth watching: the down interest rates and the down dollar in the U.S. Both indicators are in a down trend year to date as inflation slows growth. Gold is also up 9.3% vs. the DJIA, which is down -1.26% year to date.

Also, the slope of the U.S. housing price appreciation is slowing according to the Case-Shiller index. As interest rates fall, the U.S. housing demand is also falling.

I purchased Restoration Hardware (RH) on Tuesday and also Ohr Pharmaceuticals (OHRP). Again, both stocks are oversold and meet certain buy criteria.

At the time of publication, the author held RH and OHRP but held no positions in any of the other stocks mentioned.

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

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Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

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