NEW YORK (TheStreet) -- As I mentioned Tuesday, the oil sector was in oversold territory and I expected to see the oil stocks move higher from those extreme oversold levels. Well, that is exactly what we got in Wednesday's trading.
The DJIA was higher by 77.52 points to close at a new all-time high of 17138.20. The S&P 500 did not set another all-time closing high but was up by 8.29 points at 1981.57. The Nasdaq was higher by 9.58 to close at 4425.97. The Russell 2000, which has been in a "Trend Bearish" mode, was lower again by 2.26 points to close at 1151.55.
The Russell 2000 index is now approaching an extreme oversold condition, and if it can open to the downside on Thursday the index will be extremely oversold. The Russell 2000 is the index that I expect to see rebound in tomorrow's trading. There are many small-cap stocks that will be approaching an extraordinarily oversold condition on Thursday.
My algorithm number process has been nothing short of extraordinary when it comes to finding those extreme oversold and extreme overbought stocks. This is a mathematical process that has had a success rate of over 94% on the long and short side of trades since inception on July 18, 2013. The process can be found at www.strategicstocktrade.com.
The one glaring negative in Wednesday trading was the lack of volume to the upside. Surprise, surprise.
In addition, it must be noted that we are back to a two-tiered trading market, the Nasdaq and Russell 2000 versus the DJIA and the S&P 500. If you traders are looking to buy this market and have a process of buying low and selling high, focus on the Russell 2000.
As I mentioned earlier, the oil stocks have been extremely oversold. In Tuesday's article I said I'd purchased Southwestern Energy (SWN) and Penn West Petroleum (PWE) based on my internal extraordinarily oversold algorithm numbers. Well, I sold those stocks early on Wednesday for huge gains. Just take a look at where those stocks finished trading on Wednesday. I also sold my First Solar (FSLR) long position from Tuesday at a better than 1% gain. This does not happen by accident. Traders need a risk management process that is both repeatable and accurate.
At the close of trading on Wednesday I started a new long position in Ultra Petroleum Corp (UPL). UPL closed trading with an extraordinarily oversold number.
In sum, the oil sector and oil stocks were the most oversold. We found those stocks and acted accordingly on the buy side.
At the time of publication the author was long UPL.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.