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Are Stocks Bracing for a Pullback?

By  +Follow July 25, 2013 9:47AM
Tickers Mentioned:

As earnings season chugs along, a look at the over equities market shows that stocks may be a bit stretched for the time being. Whether operating results can give investors that extra boost to push the market over key territory remains to be seen. We asked Toni Turner of TrendStar Trading Group for her thoughts in this week's interview.

EQ: It’s still early in the second quarter earnings season, but so far we’ve somewhat of a mixed bag. Financials, however, have had a very strong showing. Does this bode well for the market?

Turner: Yes. In fact, if it weren’t for the companies in Financials, corporate earnings would be negative. That’s how well they’ve done. If you look at the monthly chart of the Financial Select Sector SPDR ($XLF), we can see that the XLF made an all-time high on May 2007 at $38.15. As you know, it moved in a downtrend from that high down to its March low at $5.88. It closed at $20.64 on Wednesday, so it definitely has a ways to go to reach 2007 highs. Still, the XLF has definitely been in a nice uptrend since July 2012.

If we go from the monthly chart,  to a daily chart, then we see more detail. We see that the leaders of the Financials and top components of the XLF, such as JPMorgan Chase ($JPM), Wells Fargo ($WFC), Bank of America ($BAC), and Berkshire Hathaway ($BRK-A), got ahead of themselves in  the short term. Now, I suspect  the financial sector  is  due for a dip. The housing recovery has certainly given momentum to the the regional banks in the SPDR S&P Regional Banking ETF ($KRE). Regional banks  are still moving higher,  closing on their highs, and appearing unstoppable—but of course, we know better than that.

I suspect that the KRE will succumb to a little profit taking pretty soon because nothing goes up forever. From a big picture perspective though, we want strong banks and for them to continue to be strong because that’s good for the economy.

EQ: You’ve been watching the PowerShares QQQ ($QQQ) for a while now and observed that it was a bit overstretched. Now that Microsoft ($MSFT), Google ($GOOG), and Apple ($AAPL) have reported, do you think the investors may be looking to take profits out of Tech?

Turner: Apple certainly held up the QQQ on Wednesday.  But Microsoft, Google, and Intel are losing some altitude here, and in general, Tech has come out with some disappointing earnings. The QQQ is trading above $74, but there’s an open price gap from earlier in July, and it’s a gap that needs to be filled between $75 and $73.

Since Wednesday was not an up day, and we’ve had two days to the downside, meaning two red candles in a row. Usually, it tells us that even though they’re trading within the same price range, it may indicate that people are taking profits here. While I can’t project what will happen, I wouldn’t be surprised to see the QQQ come down to at least $73 in the near future.  

And  if the QQQ can’t hold support there, then  it may take another leg down to the 71.50 level.

EQ: The S&P 500 walked up to the 1700 level and pulled back this week. What are your thoughts of the likelihood of it breaking through? What are the implications if it fails to do so?

Turner: It did pull up to almost 1700, and I think a lot of it had to do with expectations that it would, and so it did. That’s a good thing, but markets usually get softer in the summer. We have seen very little of that happening this year, except for the small dip we experienced  in mid-June.

Now if we look at the 14-day relative strength indicator (RSI), it is pointing lower. . I think the market is tired here and a lot of people are gone for the summer. If interest rates begin to climb here—and certainly, it looks like that may happen again as the 10-year bond has fallen off—it may remind us of the upcoming Fed’s tapering.   

I went through hundreds of daily stock charts on Monday, looking through the components from many of the major  indices, and  a hgh percentage of those stocks  were extremely overbought, and trading in nosebleed territory. And, of course, valuations are rising.. I wouldn’t be surprised, and I certainly wouldn’t be upset if we took a breather, here.  It would provide promising opportunities to enter new positions.

EQ: Are there any sectors or industry groups you’re watching right now?

Turner: I’ve gone through a lot of the sectors and other things that I normally watch, and except for maybe a few stocks, I’m really not really excited about going long on much of anything right now. That doesn’t happen to me very often. That said, if we see an orderly dip in the regional banks and the KRE, I will be watching for entry opportunities in that part of the financial sector.

EQ: What are your thoughts on adopting a short strategy right now?

Turner: Despite its warts, the market is in a textbook  uptrend right now, and while you might be able to short an individual stock, you would be going against the prevailing direction of the trend. So the odds of success can be less than selling short in a downtrend, or substantial market weakness.  less. You can short the pullback in day trades , but if you are not nimble, you can get stopped out quickly.  It just takes one talking head on TV or in an article to make one comment to spark the market to move back up--and you end up getting caught in a short squeeze that can result in an unnecessary loss. .

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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Results for xlf
IH News Desk
23 Oct 14 01:59:48
$AXP Last Price Click Here: http://t.co/uos4axPomU Also See: $UTX $PANW $SDRL $XLF ~
Stock Relay
22 Oct 14 23:14:26
$EFA Open Click Here: http://t.co/jORTFnGM0U Also See: $MJNA $AA $GOOG $XLF ~
Ticker Report
22 Oct 14 22:28:00
Short Interest in Select Sector Financial Slct Str SPDR Fd Drops By 4.5% $XLF http://t.co/z5WPOOz1Io
22 Oct 14 21:33:23
NEW POST: Late Night Strategy for Thursday http://t.co/dJJKAiqf7T $GS $IWM $QQQ $SPY $XLF
22 Oct 14 18:12:23
@momotrader keep your eye on the $QQQ, $XLF and $IBB here/$TRAN/$SOX and $DAX.
22 Oct 14 17:37:04
Levels to watch tomorrow (10/23) - http://t.co/j60TO6D96O $YELP $AMZN $DDD $DIA $IWM $QQQ $SBUX $SPY $TSLA $XLF
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22 Oct 14 16:18:58
$FNMA Message Board Posts Click Here: http://t.co/RSFB3c1fe1 Also See: $EBAY $TSLA $HD $XLF ~
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22 Oct 14 15:26:31
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22 Oct 14 15:00:39
$ACHN Exchange Click Here: http://t.co/yhBoa7C2ly Also See: $XLF $EUO $JNUG $F ~
22 Oct 14 14:52:52
Our Penny Stock Picks Gained 371% In 2 Weeks! Get Our Next Pick Early: http://t.co/z2noBUWrEP $XLF $F $FN $MSFT
22 Oct 14 13:55:18
"@alphatrends: Video http://t.co/sOf2VOryaK Midweek Stock Mkt Analysis 10/22/14 $SPY $QQQ $IWM $XLF $SMH $AAPL" great stuff.
22 Oct 14 13:54:03
#ActiveViews Per earlier - Like the setup - So nice (even for day) when it works so well. Lets see whats next!? $SPY $QQQ $XLK $XLF $VIX
Sunrise Trader
22 Oct 14 13:43:18
Nicely presented TY Brian RT @alphatrends: Video http://t.co/ovdPJWbJ3y Midweek Stock Mkt Analysis 10/22/14 $SPY $QQQ $IWM $XLF $SMH $AAPL
Brian Shannon
22 Oct 14 13:25:13
Video http://t.co/aJefqWkhPn Midweek Stock Mkt Analysis 10/22/14 $SPY $QQQ $IWM $XLF $SMH $AAPL
22 Oct 14 13:23:10
Index/Sectr $DIA, $SPY, $QQQ, $IWM, $XLB, $XLE, $XLF, $XLI, $XLK, $XLP, $XLU, $XLY, $XRT, $XLV, $IYT http://t.co/Not9mJiNm2
Tommy P.
22 Oct 14 13:10:27
$XLF failed 50-EMA today.
Ro Patel
22 Oct 14 12:44:19
Fed data: Consumer lending up 6% above 2013, but much of rise due to loans to wealthy custs in banks' brokerages - $SCHW $ETFC $AMTD $XLF
Chasing Stars
22 Oct 14 11:30:00
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Darlene S Williams
22 Oct 14 11:12:35
22 Oct 14 11:00:28
Our Penny Stock Picks Gained 371% In 2 Weeks! Get Our Next Pick Early: http://t.co/z2noBUWrEP $XLF $F $FN $MSFT
Stock Forums
22 Oct 14 10:42:06
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22 Oct 14 09:44:05
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$XLP alot of talk going around about this one $MYEC $HAL $GILD $XLF $GOOG http://t.co/qwZ3ol3hBv
Investors Hangout
22 Oct 14 09:23:43
leahanne: $XLF Financial Select Sector SPDR (XLF) 22.92 http://t.co/kHXnIrcVwo
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22 Oct 14 09:23:39
leahanne: $XLF Financial Select Sector SPDR (XLF) 22.92 http://t.co/37vNVv44WP
22 Oct 14 08:56:17
$XLF Financial Select Sector SPDR (XLF) 22.92 +0.05 (+0.22%) $YY $LMT $IVV http://t.co/haSH4EOGvq
BNK Invest
22 Oct 14 08:10:31
Noteworthy ETF Outflows: $XLF $BAC $C $AXP #etfs http://t.co/fAuxUAK29y
22 Oct 14 08:10:28
Noteworthy ETF Outflows: $XLF $BAC $C $AXP #etfs: Symbols mentioned in this story: XLF, BAC, C, AXP E... http://t.co/MvJ39YP9kV
22 Oct 14 07:57:10
$EFA Opinion Today Click here to find out if $EFA is a buy hold or sell. Watching these stocks. $BIDU $XLF $SU http://t.co/PC9P4t4dem
Anmol Singh
22 Oct 14 07:44:09
Only Longs I have is $SRPT and $FAZ which is actually bearish of $XLF so not really a long lol. $SRPT only long I have at the moment
Stock Forums
22 Oct 14 07:41:45
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22 Oct 14 07:34:19
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22 Oct 14 07:19:02
$XLF 20141121 Block Trade: 3749 trade. ~$8.6 MM notional value.
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Extreme Stocks
22 Oct 14 07:07:11
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BLOCK TRADE: $XLF 1,000,000 shares @ $22.88 [10:03:10]
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22 Oct 14 06:58:01
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Steve Burns
22 Oct 14 06:41:14
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Investors Hangout
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Investors Hangout
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By  +Follow July 25, 2013 9:47AM



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