NEW YORK (TheStreet) -- As mentioned in Tuesday's article, the fact that the stock market closed down on Tuesday with decelerating volume was bullish on the margin. With that down day on Tuesday, the stock market could resume its upward movement.
Well, Wednesday turned out to be an up day in the stock market, as predicted. The DJIA finished higher by 91.26 points to close at 16651.80 while the S&P 500 was higher by 12.97 at 1946.72. The Nasdaq finished up 44.88 to close at 4434.13 and the Russell 2000 was higher by 8.75 points at 1141.78.
However, a major negative was the up move on decelerating volume, a common theme for 2014. Just as the decelerating volume on the downside Tuesday was bullish, the decelerating volume on the upside Wednesday is bearish on the margin.
Thus, traders should not get very excited about this move on Wednesday. As a matter of fact, the Russell 2000 index, on a green open Thursday, will be well into overbought territory, according to my risk management process.
There continue to be many "growth slowing" indicators in the economy. Macy's (M) - Get Reportreported earnings on Wednesday that were below estimates, and the stock was hit hard, closing down 5.51%. This is just one of many retail stocks that have missed estimates.
This will be another indicator that reinforces the issue that the next GDP report will continue to show a slowing economy.
If you believe what the Federal Reserve'sgrowth forecasts are, you do that at your own risk. The Fed has been consistently wrong on growth by an average of 98 basis points since 2010.
In sum, with a green open on Thursday, the Russell 2000 will be overbought and the other indexes will be showing lower highs. I will continue to be cautious and opportunistic in trading.
This process has served my subscribers extremely well. Knowing when stocks are overbought and oversold makes trading a much easier game. Having the algorithm signals allows us to trade profitably.
On Wednesday, I sold most of my Mylan (MYL) - Get Report and all of my Live Nation Entertainment (LYV) - Get Report long positions for a very nice profit. Both stocks had an extraordinarily oversold algo number on Tuesday.
This is how we trade at www.strategicstocktrade.com.
At the time of publication, the author was long MYL and TZA, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.