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What to Do During this Tapering Temper Tantrum?

By  +Follow June 21, 2013 9:45AM
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In this week's interview with Toni Turner of TrendStar Trading Group, we discuss the market's major sell-off, and where investors may hope to find support in the broader market.

EQ: Stocks are down over 3 percent since Ben Bernanke's press conference on Wednesday. Is this an overreaction from the market or were investors caught off guard?

Turner: I think the market is overreacting, though you could see bonds were falling pretty dramatically Wednesday afternoon as Bernanke was holding his press conference. So we definitely had a warning, and he even told us there was a timeline for slowing bond purchases and mortgage-backed securities. Frankly, the market just didn't like it. I've been using the analogy of a teenager whose getting his or her their allowance cut. It's never fun.

However, Thursday also showed that jobless claims rose, and adding to the angst, was the preliminary data released by HSBC that reported China's PMI slipped to a nine-month low. We also saw Brazil's drop due to their unrest, oil prices falling, and a sense that the world is really, on the whole, is looking at sluggish manufacturing numbers. When you combine those data with Mr. Bernanke's comments, I think a lot of people who have made profits in the market earlier this year may be just throwing up their hands and selling, saying it's enough because they don't want to take the chance of giving their profits back to the market.

EQ: Even with the volatility that we had seen over the last few weeks, the S&P 500 had held firmly above 1600. It broke below that on Thursday. What does that mean to you?

Turner: Well, holding above 1600 was optimal, but below that, I see support at 1580 and 1540. Of course, we want to see the Dow Jones Transportation Average Index and iShares Dow Jones Transportation Average (IYT) to remain at or above current levels at $109.

Certainly, if the S&P 500 drops, we don't want to see it confirmed by the transports as well. I think many people are taking profits from the bull market that we experienced through May, and if we fall another 2 to 3 percent, then investors may return to the market looking for new opportunities.

EQ: Are the volatility ETFs like the iPath S&P 500 VIX ST Futures ETN (VXX) a good place to look at right now?

Turner: The VXX tracks the Volatility Index on an intraday basis, which is good for one or two days of trading, but it's not meant to be used for the long term. If you look at the VXX on a chart that goes back to 2011, you can see it doesn't move in an exact pattern with the VIX over the long term.

EQ: So it's similar to the concerns of using leveraged ETFs in ways they weren't necessarily intended to be used?

Turner: What people have to realize with inverse leveraged ETFs is that they could be good vehicles to be used for day trading and possibly held overnight.

Anyone that gets into ETFs such as the ProShares UltraPro Short QQQ (SQQQ), which is the 3x inverse leveraged ETF that matches up with the Nasdaq 100, or the Direxion Daily Small Cap Bear 3X Shares (TZA), which is the 3x bear for the Russell 2000, need to know that these funds readjust on a daily value. What that means is if you were to hold them for a day or maybe the next day, and they stayed at the same price, your capital would drop because of the daily readjustments. So I would say to hold them no more than three days max.

I know people who have bought them, held them, and lost money just by doing nothing. It's not a good idea because these were not meant to be bought and held for any length of time.

We see inexperienced traders buy these inverse leveraged funds, and then maybe the trade goes against them. So, the trader decides to hold the fund, thinking it will move higher anderase their losses. But you have to realize that the whole time you're holding it, you risk two factors going against you: the movement of the underlying index moving against you, as well as your investment's value moving lower because the ETF is getting readjusted everyday like it's built to. We need to remember that in the hands of people who know exactly how they're built and how they work, these vehicles are fine. For people who don't understand them, they can be very dangerous.

EQ: Which sectors or industry groups look better than most for you at the moment?

Turner: It seems like we're throwing out all the babies with the bathwater right now, so I don't see much I'm willing to take on sectorwise, right now. I am, however, watching three agriculture commodities ETFs. Again, they should be played only by people who understand them. I'm watching right now are iPath DJ-UBS Livestock TR Sub-Idx ETN (COW), Teucrium Corn (CORN), and iPath Dow Jones UBS Grains Total Return Sub-Index ETN (JJG).

We have a drought in the Midwest and corn prices are down. There's more to it than that obviously, and people have to do more of their own research on these ETFs, but they have the potential to move go higher.

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. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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Results for IYT
Jeff Quiggle
27 Mar 15 17:27:22
$MACRO > $UUP $IWM $FEZ $TLT $FXI $QQQ $JNK $SPY $GLD $EEM $USO $IYT Yesterday > $UUP $IWM $TLT $FEZ $FXI $QQQ $SPY $JNK $EEM $USO $IYT $GLD
Dave Fry
27 Mar 15 16:14:52
$SPY $SPX $RUT $NDX $XLB $IYT $FXE ETF Digest Dave's Daily: On The 5th Day, Markets Rally A Little http://t.co/PQs8czVR5j
Jeff Quiggle
27 Mar 15 13:12:30
US rail freight traffic weekly chart 2012-2014 and 2015 year to date: $IYT $DJT $MACRO http://t.co/hiVk3O8ifV
Jeff Quiggle
27 Mar 15 11:40:13
Mixed again! US rail freight week Mar25 #carload -2.4% #intermodal +6.7% http://t.co/EexnOOb3Z5 3/10 cmdty up $IYT $DJT $MACRO
SmallCaps
27 Mar 15 11:14:25
Review of Timothy Sykes book: An American Hedge Fund: http://t.co/AKjszqM28B $RFMD $IYT $MERC $GASL $COV $RH
Van Castle
27 Mar 15 08:55:03
RT @andrewunknown: Transports: churning at structured resistance after 335% run on ominously familiar fade from exospheric momentum $IYT ht…
Van Castle
27 Mar 15 08:54:53
RT @andrewunknown: Dow Transports, Still Throwing Off Static: 6-Month Congestion Band at 8-yr Inverse H&S Bottom Target, Wedge Apex $IYT ht…
Andrew Kassen
27 Mar 15 08:54:02
Biotech called. They talked with their warehouse, which confirmed Transports have entered a "new era" also. #logisticsdisruption $IBB $IYT
Andrew Kassen
27 Mar 15 08:51:51
Transports: churning at structured resistance after 335% run on ominously familiar fade from exospheric momentum $IYT http://t.co/qvLA9DnfbL
Andrew Kassen
27 Mar 15 08:48:50
Dow Transports, Still Throwing Off Static: 6-Month Congestion Band at 8-yr Inverse H&S Bottom Target, Wedge Apex $IYT http://t.co/Djyz66hlAo
Jimmy Walsh
27 Mar 15 08:00:55
$IYT so far 200 day held looking at the likes $KSU , $LUV bounce plays after being beat down
Gary Gordon
27 Mar 15 07:50:50
Commented on: "Are Transportation Stocks Hinting At A New Recession?" http://t.co/Fb9JtUaPDx $IYT $SPY $DIA $MUB
Nat Robbins
27 Mar 15 07:43:21
Watching $NYA and $IYT for clues. Both at 200-day MA. Transports threatening to break down. NYSE has been trying to break out to upside.
Jimmy Walsh
27 Mar 15 07:15:54
RT @macroQmicro: #Transport etf $IYT down to 200DMA where it converges with bottom line of multi-month descending triangle $DJT $MACRO http…
Jeff Quiggle
27 Mar 15 06:58:21
#Transport etf $IYT down to 200DMA where it converges with bottom line of multi-month descending triangle $DJT $MACRO http://t.co/tvtVlfck4F
traderBXV
27 Mar 15 06:26:15
$IYT Transportation Index sitting on 200sma with an indecision bar... this may be the first clue as to mkt direction http://t.co/JTUvQ1cmKB
SmallCaps
27 Mar 15 05:51:08
Review of Timothy Sykes book: An American Hedge Fund: http://t.co/AKjszqM28B $RFMD $IYT $MERC $GASL $COV $RH
Best Market Alerts
27 Mar 15 03:41:58
$IYT $XLI New 20-day low. Only two sectors to generate new low alerts. Unfortunately, both are key cyclical sectors.
R Murray MD CFII
27 Mar 15 02:42:24
Unless #Transports lose DMA200 badly today we will start scaling back in to our Longs on dips $IYT http://t.co/VFlKeXtpbP
TalkMarkets
27 Mar 15 01:39:01
Are Transportation Stocks Hinting At A New Recession? $FDX $UNP $R $IYT $DIA $SPY $FXY $GLD $MUB http://t.co/A1LeNSeDen
SmallCaps
26 Mar 15 23:07:22
Review of Timothy Sykes book: An American Hedge Fund: http://t.co/AKjszqM28B $RFMD $IYT $MERC $GASL $COV $RH
TalkMarkets Recap
26 Mar 15 19:39:01
Are Transportation Stocks Hinting At A New Recession? $FDX $UNP $R $IYT $DIA $SPY $FXY $GLD $MUB http://t.co/6yikSFO604
PennyStock Zone
26 Mar 15 19:17:06
Review of Timothy Sykes book: An American Hedge Fund: http://t.co/HMYdF92FUf $RFMD $IYT $MERC $GASL $COV $RH
GThomasLackeyJr CMT
26 Mar 15 17:01:33
March 26, 2015 RS Movers http://t.co/0xVtA7y6jf $PSP $DWX $QQQE $QQQ $GDX $PXE $IYT $SMH $GILD $BHI $SPN $ATNI $KBH $AOL $BIDU $UNP
Eternity101
26 Mar 15 17:00:03
RT @WSConsensus: Index/Sector $DIA, $SPY, $QQQ, $IWM, $XLB, $XLE, $XLF, $XLI, $XLK, $XLP, $XLU, $XLY, $XRT, $XLV, $IYT http://t.co/WOwmBFKW…
WallStreetConsensus
26 Mar 15 16:59:25
Index/Sector $DIA, $SPY, $QQQ, $IWM, $XLB, $XLE, $XLF, $XLI, $XLK, $XLP, $XLU, $XLY, $XRT, $XLV, $IYT http://t.co/WOwmBFKWf6
Jeff Quiggle
26 Mar 15 16:36:07
$MACRO > $UUP $IWM $TLT $FEZ $FXI $QQQ $SPY $JNK $EEM $USO $IYT $GLD Yesterday > $UUP $IWM $TLT $QQQ $FEZ $FXI $SPY $EEM $IYT $JNK $USO $GLD
Gary Gordon
26 Mar 15 14:02:43
Commented on: "Are Transportation Stocks Hinting At A New Recession?" http://t.co/Fb9JtUaPDx $IYT $SPY $DIA $MUB
Bret Kenwell
26 Mar 15 13:29:21
New #PrivateJet App Adds Transparency for the #SuperRich http://t.co/vaQIpW9RUt via @TheStreet #Stocks $IYT $DAL $UAL $AAL $SAVE $LUV
Gary Gordon
26 Mar 15 13:05:38
Are Transportation Stocks Hinting At A New Recession? $FDX $UNP $R $IYT $DIA $SPY $FXY $GLD $MUB http://t.co/ToVqk2v3do
TalkMarkets
26 Mar 15 13:05:37
Are Transportation Stocks Hinting At A New Recession? $FDX $UNP $R $IYT $DIA $SPY $FXY $GLD $MUB http://t.co/A1LeNSeDen
stock90ufo
26 Mar 15 12:51:46
RT @ukarlewitz: $SMH is almost the same as $IYT.
stock90ufo
26 Mar 15 12:51:39
RT @ukarlewitz: $IYT: at the Sept high and the lows in Dec, Jan and Feb, plus the 200-dma. Big level, in other words
R Murray MD CFII
26 Mar 15 12:11:32
#Transports small #BUY candle bounce off SMA200 scale back in to #Tech #Biotech longs on dips with tight trail $IYT http://t.co/FyBZHl5OPT
FOREX Insight
26 Mar 15 11:54:39
RT @SeekingAlpha: Are Transportation Stocks Hinting At A New Recession? http://t.co/OBJceL9m0V $IYT $SPY $DIA $MUB $FXY $GLD
Portfolio Strategy
26 Mar 15 11:48:18
Are Transportation Stocks Hinting At A New Recession? http://t.co/qlD40CDLkG $IYT $SPY $DIA $MUB $FXY $GLD
Seeking Alpha
26 Mar 15 11:48:17
Are Transportation Stocks Hinting At A New Recession? http://t.co/OBJceL9m0V $IYT $SPY $DIA $MUB $FXY $GLD
Urban Carmel
26 Mar 15 11:42:19
$SMH is almost the same as $IYT.
Urban Carmel
26 Mar 15 11:40:32
$IYT: at the Sept high and the lows in Dec, Jan and Feb, plus the 200-dma. Big level, in other words
Michael Diamondz
26 Mar 15 11:36:09
$iyt holding 154 level...may be a counter move trade. You know your risk
BNK Invest
26 Mar 15 11:08:33
Relative Strength Alert For Union Pacific $UNP $IYT #dividends http://t.co/KRtle53Mxt
A
26 Mar 15 07:42:57
@sig_57 $IYT
G
26 Mar 15 07:13:17
$IYT keep and eye on the transports..they kind of gave away this selloff along with the parabolic bios..
R Murray MD CFII
26 Mar 15 07:00:07
Out all longss til #Transports the canary in the $DIA $SPY $QQQ $IWM #ETF coal mine shows a #buy candle $IYT http://t.co/b6XUoWs0cg
stk
26 Mar 15 06:57:51
@FuturesTrader71 gotta remember if watching $IYT or the transport index, it will update slowly after the open, just like the Dow Jones..
SmallCaps
26 Mar 15 06:48:34
Review of Timothy Sykes book: An American Hedge Fund: http://t.co/AKjszqurh3 $RFMD $IYT $MERC $GASL $COV $RH
Interactive Brokers
26 Mar 15 06:22:21
#IBTI Stocks - The Hammerstone Report http://t.co/cI7R5kiePQ $SPY $IWM $QQQ $SOX $USO $XLE $XOP $EWH $EWJ $DIA $TLT $IBB $IYT
Alan Laubsch
26 Mar 15 05:33:34
Cascade in Transportation $IYT is a systemic risk early warning indicator. See @HeavyTails predictive stress test http://t.co/0NFTXOiGLn
Ben Silverberg
26 Mar 15 05:19:40
The lines have been drawn for today: $SOX $IYT on the downside versus $XLE $OIH to the upside; Good Luck trading!
Alan Laubsch
26 Mar 15 03:14:47
DJ Transportation $IYT: 3rd neg @HeavyTails surprise/20days. Bearish. $IYT is a leading economic growth indicator. http://t.co/eKU4MA6k0F
				
				
By  +Follow June 21, 2013 9:45AM
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