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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
28 Jan 15 12:09:43
$TNA Stock Price Updated Wednesday, January 28, 2015 2:11:23 PM $UVXY $AMZN $XLF $BAC http://t.co/z9GrOLlqOl
28 Jan 15 12:03:57
$XLF Financials continue to be the ball and chain around the ankle of the $SPY. http://t.co/y4mgzQlllz
28 Jan 15 11:53:14
The only thing keeping $SPY over 200 is $AAPL euphoria. That will end in a few hours. $SPX $VXX $QQQ $XLF
28 Jan 15 11:50:08
$SPY broke weekly low. It's going lower $SPX $SPY $QQQ $XLF $AAPL
tom thumb
28 Jan 15 11:47:40
RT @WallStJesus: $XLF player buys 14,374 Jun15 $20 P .28
28 Jan 15 11:45:53
RT @WallStJesus: $XLF player buys 14,374 Jun15 $20 P .28
Alpha Maven
28 Jan 15 11:45:16
RT @seeitmarket: New Post - "Sector Relative Strength Check: Leaders & Laggards" http://t.co/5RwplRfajI by @ATMcharts | $SPY $IBB $SMH $IYR…
28 Jan 15 11:44:51
BLOCK TRADE: $XLF 1,750,000 shares @ $23.40 [14:34:36]
28 Jan 15 11:43:52
RT @WallStJesus: $XLF player buys 14,374 Jun15 $20 P .28
28 Jan 15 11:43:05
Massive $SPY put volume $SPY $VXX $XLF $QQQ $AAPL
Michele Schneider
28 Jan 15 11:42:21
RT @WallStJesus: $XLF player buys 14,374 Jun15 $20 P .28
Ani Anirudhan
28 Jan 15 11:42:05
RT @WallStJesus: $XLF player buys 14,374 Jun15 $20 P .28
28 Jan 15 11:41:49
$XLF player buys 14,374 Jun15 $20 P .28
28 Jan 15 11:39:13
$SPY at weekly low.... $AAPL $XLF $QQQ $SPX $VXX
28 Jan 15 11:38:24
BLOCK TRADE: $XLF 1,750,000 shares @ $23.40 [14:38:24]
Andy Nyquist
28 Jan 15 11:37:47
RT @seeitmarket: New Post - "Sector Relative Strength Check: Leaders & Laggards" http://t.co/5RwplRfajI by @ATMcharts | $SPY $IBB $SMH $IYR…
Anthony Allyn
28 Jan 15 11:35:38
Updated the $XLF chart slightly http://t.co/zMeuv9AZGk
28 Jan 15 11:34:37
BLOCK TRADE: $XLF 1,750,000 shares @ $23.40 [14:34:36]
Michele Schneider
28 Jan 15 11:33:42
$XLF as I feared, dropping to the 200 DMA or at least almost there
28 Jan 15 11:24:26
$SPY $DIA $XLF #FOMC economeeyz boomin that's y $USO $OIH $OIL $CL_F continue tankin and they cant raize interest rates. man thu lies...
28 Jan 15 11:22:55
People aren't stupid. If $SPY doesn't move up they will switch to bonds in two seconds $SPX $QQQ $AAPL $VXX $XLF
SA Breaking News
28 Jan 15 11:21:25
Bond yields slide after FOMC http://t.co/gGKrjJlhxa $TLT $TBT $XLF $KBE
28 Jan 15 11:16:06
$SPY $DIA $QQQ $XLF they cant raize rates cuz thu economeeyz 2 strong LMFAOOOOOOOOOOOOOOOOOOOOOOO holeey fuck... #FOMC
28 Jan 15 11:09:56
$XLF back to lows is not good
IH News Desk
28 Jan 15 11:09:11
$XLF Last Price Updated Wednesday, January 28, 2015 1:11:24 PM $IBB $MNKD $EFA $GDXJ http://t.co/FIrLrI5cLg
28 Jan 15 11:06:27
$SPY $DIA $QQQ $XLF i mean seriousleey how many more timez can they prop this market up on thu same reegurgitated newz? groundhog day #FOMC
Langan Stocks
28 Jan 15 10:53:35
$AA Filings Updated Wednesday, January 28, 2015 1:03:26 PM $GDXJ $FEYE $SVXY $XLF http://t.co/QyxtmzsIb1
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$IWM Recent News Updated Wednesday, January 28, 2015 12:07:29 PM $XLK $XLF $EWT $KO http://t.co/RY94Drccde
Rosner Stocks
28 Jan 15 10:00:08
$CLF Recent News Updated Wednesday, January 28, 2015 11:59:28 AM $BBRY $TVIX $CVX $XLF http://t.co/IhkCUEBxFg
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Our Penny Stock Alert On $QLTS Has Gained 34.62% In The Past 2 Days! Special Update: http://t.co/MNFk4FhSe1 $XLF $F $FN $MSFT
John Templeton
28 Jan 15 09:57:00
$xlf on watch here. A break of $23.50 and true market direction will show. http://t.co/2W67gj8drf
R. J. Sullivan IV
28 Jan 15 09:51:42
Commented on StockTwits: tough to game fed days but $SPY market is on borrowed time $USO $XLE $XLF $EEM $GREK $RSX http://t.co/Rtw5V3NdkA
28 Jan 15 09:47:13
$EXK Endeavour Silver Corp (EXK) 2.90 -0.12 (-3.97%) $SMH $SAMP $XLF http://t.co/lTKFjKkxoj
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$GM General Motors Company (GM) 33.33 -0.09 (-0.27%) $XLF $GLD $V http://t.co/M9iQKeJxzn
Investors Hangout
28 Jan 15 09:17:15
chartguy89: XLF Stock Chart $XLF $SCTY $NBR $CSX http://t.co/T6smVGxXeG
Investors Hangout
28 Jan 15 09:17:15
chartguy89: XLF Stock Chart $XLF $SCTY $NBR $CSX http://t.co/c7kDG6Mp9y
28 Jan 15 09:09:31
XLF Stock Chart $XLF $SCTY $NBR $CSX http://t.co/1UV0vYLir5 http://t.co/z4yCCmB42a
28 Jan 15 09:09:07
Barcelona! Take me back! $XLF $FXI $BAC $KO $EEM $TLT $EWT $COP $QQQ $VXX $XOP http://t.co/JUFJoVNc4s http://t.co/10zX2kIVYZ
28 Jan 15 09:02:10
$STX Buy? Click here to find out if $STX is a buy hold or sell. Watching these stocks. $XLV $XLP $XLF $UPRO ht http://t.co/4QmkOP900v
Chet Stedman
28 Jan 15 08:50:21
$XLF $CL_F weak like snail $AAPL $BA strong like ox
28 Jan 15 08:50:02
$XLF - XLF - March Seasonality - https://t.co/JN0e7Kqs3W
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$HNU.TO Current Price $HNU.TO Most recent stock chart and technical analysis. $STX $AAL $SSYS $NES $XLF $NBD.T http://t.co/D8llCui0oM
TV_Trading Ideas
28 Jan 15 08:42:51
XLF - March Seasonality $XLF http://t.co/GakT3BeJTr
28 Jan 15 08:42:51
$XLF chart: XLF - March Seasonality. http://t.co/SQ7xxidEXo
28 Jan 15 08:36:53
RT @paulwoll: Likely the most important tell during #FOMC will be $DX_F $DXY $UUP action may want to keep that on screens as well as $GC_F …
Woll Street
28 Jan 15 08:36:33
Likely the most important tell during #FOMC will be $DX_F $DXY $UUP action may want to keep that on screens as well as $GC_F $GLD and $XLF
28 Jan 15 08:30:28
I love this trading girl! $XLF $FXI $BAC $KO $EEM $TLT $EWT $COP $QQQ $VXX $XOP http://t.co/l9JkTCL0PV http://t.co/qS1TDMhNFM
Tom Davis
28 Jan 15 08:28:45
bottom line - $XLF looks set up to be throttled - imo anything below $25.51 is bearish px action
28 Jan 15 08:12:17
$XLF: Calling a spade a spade: Financial chart looks like garbage here. http://t.co/6Cg7Yxml7K
Rag Time Gal
28 Jan 15 08:11:50
RT @seeitmarket: New Post - "Sector Relative Strength Check: Leaders & Laggards" http://t.co/5RwplRfajI by @ATMcharts | $SPY $IBB $SMH $IYR…
By  +Follow July 25, 2013 9:47AM



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