The divergence between the indexes was so prominent that something had to give. The DJIA and S&P put up a good fight on Wednesday, staying green for much of the day, before finally giving in to the broader market selling.
The DJIA closed Wednesday down 98.89 points and the S&P 500 closed down 13.06 at 1852.56. The buy level on the daily trading range for the S&P 500 on Wednesday was 1852, according to internal programs. The algorithm programmed machines and hedge funds use those S&P 500 daily trading ranges as a guide.
The Nasdaq and Russell 2000 index are so oversold by certain indicators that an intraday turn on Thursday can very well occur. The DJIA and the S&P 500 are not oversold by those same indicators. We still have a very divergent market that will require all the indexes to come together.
Investors and traders both need to be very cautious on this market. Are we in a topping process? That is a key question going forward. Tops are not points in time or numbers but are a process that takes time to develop.
Patience and opportunistic trading are the keys in this market environment. This market has many good things going for it. Being to bearish or bullish right now is not the proper course of action. Take what the market is giving you.
This market is still showing many more stocks that are oversold vs. overbought. That is the direction that most traders should be looking. The markets need this type of sell off that occurred today to shake out the weak hands so a better move higher can take place.
As mentioned in Tuesday's column, Restoration Hardware, (RH) was a long stock that was bought. It was sold this morning for a nice profit.
Orbitz Worldwide, (OWW), is a small-cap stock, a market cap of less than $4 billion, that was purchased at the market close. Kinder Morgan, (KMI) is a large cap, a market cap in excess of $4000, that was shorted on Wednesday.
The stock market is still in both a trade and trend bullish condition. Until that changes, the market needs to be traded from the long side.
At the time of publication the author held positions in OWW and KMI.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.