In This Stock Market, What Goes Up Will Come Down Hard, on No Volume

NEW YORK (TheStreet) -- The stock indexes closed mixed on Wednesday with the DJIA closing up 15.31 points at 17122 and the S&P 500 closing up fractionally at 2000.12. The Nasdaq was lower by 1.02 to finish at 4569.62 and the Russell 2000 was down 2.46 at 1172.71.

The most important fact is the lack of volume. For the second day in a row, the S&P 500 Trust Series ETF (SPY) volume came in at a new low for 2014 at just over 46 million shares. Tuesday saw total U.S. equity volume down 39% versus its year-to-date average. Wednesday volume will show the same type of statistic.

What is not registering is the fact this is coming on the heels of all-time record highs. My contra stream of tweets and emails is full of "it's different this time" and "volume is always slow this time of year" type of comments. If you traders and investors believe that you are in store for a rude awakening.

One reason for the lack of volume in this stock market could that in the most recent five-day period ending Aug. 13, domestic stock funds continue to struggle with another $1 billion being withdrawn by investors --  which makes it 16 consecutive weeks of outflows with now over $40 billion lost in the category. This can easily continue for the rest of 2014. This is all according to mutual fund data from the Investment Company Institute. The hedge funds are the only players in this stock market on a daily basis.

As we head into Thursday trading, the DJIA and the S&P 500 are extremely overbought and pushing up against the extraordinarily overbought signal. The Nasdaq and Russell 2000 are still in extremely overbought territory. To put that fact into proper context, using my internal algorithm process I have not seen all four indexes with this extreme overbought signal at the same time since four years ago.

If you are a trader or investor who is recklessly buying this stock market at these levels and continually playing the momentum trade, I will pray for you.

When the market has stopped going up on air, nobody will be able to get out. The lack of liquidity as evidenced by the volume can quickly send the downside into the abyss.

On Wednesday, I covered my Vector Group (VGR) short for a profit and added to my ProShares Ultra Short (QQQ) long position on an extraordinarily oversold signal.

At the time of publication, the author was long QQQ, although positions may change at any time.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

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