While most people prepare to celebrate the Fourth of July holiday with family and friends, traders and investors may be bracing for a bit of some fireworks in the market before the break. We asked Toni Turner of TrendStar Trading Group for her thoughts on this week’s ominous signs on the major indices.
EQ: The holiday shortened week might throw traders off a bit over the next few days as the market is closed Thursday but does resume trading Friday. Is there anything investors and traders can take away from this week’s price action or is it more of just a wash?
Turner: It’s hard to know, of course, exactly how it’s going to end up.
The SPDR Dow Jones Industrial Average (DIA), SPDR S&P 500 (SPY), and PowerShares QQQ (QQQ) all closed in gravestone doji patterns on Monday. A gravestone doji is a single-candle pattern that shows the bears are in control. If it is confirmed by price action that falls below it the following day, or candle, it can create powerful overhead resistance.
All three of the major indices closed with a gravestone doji Monday, and it shows that the bears came into control in the afternoon. If you look at these three ETFs or the underlying indices over the past three days, there has been a long upper shadow, which means the bears have been in control coming into the afternoon sessions. This could be a short-term negative. These indices are also rising into their 50-day moving averages, which is acting as resistance, and I will look to put protective stops on my short-term trades.
Now, with that said, the market does like to move higher before a holiday, but the bears are definitely looking for a fight.
EQ: With the second half of 2013 now officially underway, are there any underlying trends or stories that you’re paying closer attention to? For example, are there any “second half” stories stocks under your radar?
Turner: There are dozens of things I can come up with to watch in the second half of 2013, and a few that come to mind are in the macro realm. I think the yield in 10-year bonds will move to a normalization period, and will probably take the entire second half to evolve. That will keep the market edgy, especially if quantitative easing is withdrawn as has been promised by the Fed.
I also believe the world will keep a close watch on China to see if their GDP can stay above 7 percent. A move below that would mean more volatility in cyclicals and commodities. Of course, I’ll also be watching the housing market to see if their recovery is real.
We can take any of these overall subjects and we can drill down to various stocks within these sectors that will be affected.
EQ: Earnings season is right around the corner as Alcoa (AA) is set to report next Monday. Does it make more sense to walk away this week and prepare for next week?
Turner: If we were in more of a neutral pattern, or perhaps even moving up a little more than we are, I would say not to worry and go to the beach. But as it is, before we leave for the beach, with all these gravestone dojis out there, and the bears potentially looking for a fight, it would be wise to at least put in protective stops to make sure you don’t lose your profits.
EQ: This is one of the more uneasy holidays we’ve experienced in the recent past.
Turner: I agree, and a lot of it has to do with what’s going on in Egypt and Syria, which influences oil prices. Also, many of us are keeping an eye on Japan to see how their economy will fare with pressure on the yen . That’s another one we’ll be watching closely in the second half.
EQ: Any sectors or industry groups that have your eye right now?
Turner: I’m watching the PowerShares Dynamic Media (PBS). If it can hang on here and get above $21.50, I think it could start into another move up. It certainly hasn’t had the pullback that the S&P 500 has had. I think it will go into a whole new wave in the second half if it can maintain current levels. .
I’m also watching the companies within the PowerShares Dynamic Food & Beverage (PBJ), not so much the ETF itself, however, as its low volume makes it difficult to trade. It looks positive right now and has a similar pattern as PBS. So if it can remain positive, that’s one I’m watching.
And no, I’m not playing gold and silver. Smile.