Are Traders and Investors Getting More Defensive in May?

Toni Turner  |

May has certainly lived up to its Wall Street reputation thus far, given that the market has endured some significant turbulence since the start of the month. The sell-off from last week, coming just ahead of the jobs report, has arguably been brewing for quite some time as investors have needed a reason to take profits off the table from the recent bull run.

This week, we asked Toni Turner of TrendStar Trading Group, for her insight on the current market's landscape and any advice she has for traders hoping to navigate through the impending economic headwinds.

EQ: The April jobs numbers came out last week, and it was pretty clear that the market didn't like what it saw. What were your thoughts to the market's initial reactions?

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Turner: I think that the jobs numbers were simply the catalyst of the building negative sentiment about a bigger economic picture. It appears that many investors considered the jobs report weakness the signal to take gains. so they don't give up a percentage as they did last year in May, and the year before. Also, a lot of the selling came into the market the day before the numbers came out. Right now, we're looking at the credit problem in the eurozone, but we're also looking at adverse geopolitical uncertainty, some disappointing earnings guidance, and the fiscal course that lies ahead of us. Obviously, the GDP numbers that came out were not sterling either. So I think Friday was simply the trigger that many people took to get out of the market and observe, because they don't want to ride this market down for the summer. Quite frankly, many years May has been legendary for being a turning point in the market, even in the years prior to the 2008 collapse.

EQ: It's almost worse than the numbers came out lukewarm because it seemed like traders wanted either really bad or really good news. Would you agree with that assessment?

Turner: Absolutely, because if the numbers were really bad, it would theoretically entice Fed Chairman Ben Bernanke to possibly loosen up the reigns and bestow another round of quantitative easing. But lukewarm isn't going to get us anything. So since it's not terribly ugly or terribly pretty, we just have to deal with it.

I do think that things could get very volatile in the coming weeks as Europe is going to raise its head again as a problem. I can tell that by watching euro and the way it's acting. So for those traders who are not as experienced, I would actually recommend standing on the sidelines. For investors as well, if they need to be in the market, I would look at conservative sectors that pay good yields.

EQ: What key levels on the broader indices such as the Dow, S&P 500 and Nasdaq are you watching to see where stocks are trending?

Turner: On the Dow, I'm watching 13,000 right now. It's currently sitting right around its 50-day moving average plus price support. If it breaks below that, I'm watching 12,845. On the S&P 500, I would say that if it breaks below 1357, I would definitely suggest to new traders that they consider going to the sidelines. To me, as we see volatility coming into the market, we want to first keep a nimble mindset, and second, think through our risk management strategies with any new positions we take on.

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