This was based on in-depth, detailed analysis of where the market indexes are right now. My internal algorithm process is able to point out when the indexes are in overbought or oversold territory. When you couple those numbers with stock index prices that have been moving higher on lower volume, you have a situation that warrants extreme caution.
Chasing the stock market higher is not a recipe for success. Quite the contrary. Traders and investors are taking on substantial risk without realizing it.
On Friday, the stock indexes reacted in an unsurprising way. The DJIA closed down 140.19 points at 16361.46. The S&P 500 was down 15.21 at 1863.40. The Nasdaq lost 72.78 points to close at 4075.56 and the Russell 2000 was down 21.32 at 1123.03. This was all happening with increased downside volume.
For the year to date, the DJIA is down 1%, the S&P is flat, the Nasdaq is down 2.4%, and the Russell 2000 is down 3.5%. I have mentioned that 2014 will be the year of volatility and we have not been disappointed. This has been a stockpicker's market -- unlike 2013, when everything seemed to go higher.
Do not expect to see anything different as we move forward the rest of the year. The majority of big-name companies have reported earnings and the results have been mixed. The momentum stocks of 2013 are no longer the leaders in 2014. Facebook (FB) shares have given all their gains back, post-earnings, just like Netflix (NFLX).
Apple (APPL) was a big winner again on Friday, up $4.17 to $571.94. That is not unexpected. AAPL will now enter into overbought territory on Monday with an up open, according to my algorithm process that is able to flag these types of conditions. I fully expect to see AAPL have a selloff by mid-week.
The risk management process that I continually mention is needed by traders and investors. Protecting your capital in this type of market environment is of utmost importance.
The Nasdaq and Russell 2000 are deep into Trend Bearish territory right now. The DJIA and S&P 500 are still in Trend Bullish territory. Be aware of your surroundings as you navigate this market. The stock market sometimes does not appear to be what it seems, whether you are bullish or bearish. My trend process is a three-month or longer time frame.
If you would like to learn more about my process, feel free to visit our Web site at www.strategicstocktrades.com.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.