This Is a Stock Market With Some Serious Volume Issues -- Watch Out!

NEW YORK (TheStreet) -- This stock market has some serious issues. Tuesday saw another day of no volume. This has become a common theme in 2014. I understand that the total U.S. equity volume has been in a decline for the last five years. I get that.

But this is somewhat different. There is a genuine concern of a liquidity risk in this market. The total U.S. Equity Volume on Monday was down -21% and down -41% versus its one- and three-month averages. I have been hammering at the volume issue for a while now. This has the makings of some serious problems ahead. When down day volume is accelerating and up day volume is decelerating, that is not a good thing.

In Tuesday's trading, the volume was once again very anemic and the lack of volume is once again the headlines in my universe

The DJIA closed down 21.29 points in Tuesday's trading at 16722.34 while the S&P 500 was virtually flat at 1924.24. The Nasdaq was lower by 3.12 at 4234.08 and the Russell 2000 was down 2.75 to close at 1126.15

The DJIA, S&P 500 and the Nasdaq are all in overbought territory. The Russell 2000 is the only index that is rational. That index not overbought.

The negative divergence continues with the Russell 2000. When the Russell 2000 does bounce higher it makes a lower high. It is the only index that is in Trend Bearish territory as I have been mentioning. That is not good.

The consensus from old Wall Street is that as long as the market is going up, everything is just fine.

I will not play that game. This market has some serious issues. When the hedge fund machinery is the only game in town, the little guy better beware.

I will continue to be very patient and opportunistic in my trading. The signals of an overbought market are real. Chasing this market as a momentum player takes on a risk that most traders do not realize or understand.

For every three large-cap stocks that I have with an extreme oversold algorithm number, there are 40 with an extreme overbought algorithm number. I think the risk is very clear. If the hedge fund machinery decides to pull the plug, it is a long way down.

I am neither bullish nor bearish. I follow the numbers wherever they may lead me. And they lead me to the short side of this market.

On Tuesday, I continued to hold my AmerisourceBergen (ABC) short and Barrick Gold (ABX) long position. I added a new long position that has an extremely oversold number in Direxion Daily Semiconductor 3 (SOXS). My positions can be found at www.strategicstocktrades.com.

At the time of publication the author was short ABC and long ABX and SOXS.

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

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