NEW YORK (TheStreet) -- Tuesday was the second day of the short hedge funds covering their short positions from last week when the Nasdaq and Russell 2000 index were in oversold territory. As is always the case, the short hedge funds short at the lows and cover at the highs.
In this case, they are covering their short positions at the all-time highs in the DJIA and the S&P 500. Have to love that.
The DJIA is in overbought territory today and the S&P 500 can join the DJIA Wednes if it opens in the green. This is courtesy of my internal algorithm process that allows for knowing when the overbought and oversold conditions exist.
Tuesday saw the DJIA close at another all-time high 16715.44, up 19.97 points and the S&P 500 closing with an all-time high of 1897.45, up 0.80. All my indicators point to a green open tomorrow with an intraday turn to the downside. That would be the best case scenario for a trader.
It does not always play out that way, but the downturn is very near. So, be cautious, as the short hedge funds are just about finished covering their positions.
The Nasdaq closed down 13.69 at 4130.16 and the Russell 2000 finished at 1121.16, down 12.49 points. Both indexes are in Trend Bearish territory. Many traders and investors alike do not know of the Trend Bearish condition. So be careful and watch for the downside selloff to occur.
Volume on Tuesday was very slow. The "up on air" scenario was very noticeable. That is usually the case when the short hedge funds are at the end of their cover.