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Bears and Bulls Face-Off as Stocks Hit a Crucial Point

Investors and traders seem to have their eyes pegged on hitting all-time highs. Whether major economic headwinds will get in the way--primarily the drama on Capitol Hill as March

Investors and traders seem to have their eyes pegged on hitting all-time highs. Whether major economic headwinds will get in the way–primarily the drama on Capitol Hill as March approaches–remains to be seen. However, from a technical standpoint, stocks may be reaching a fork in the road in which bulls and bears could decide to make their stand.

In this week’s interview with Toni Turner of TrendStar Trading Group, we discuss what indicators can help identify where the market wants to go, and what key groups are presenting actionable opportunities for traders and investors right now.

EQ: The current rally seemed to hit a significant test this week after falling below 1500 on Monday, but the upward move seems to have resumed. What are you seeing from a technical perspective?

Turner: We’re seeing a nice move Wednesday on the S&P 500, and the short-term test was for it to move over Tuesday’s high of 1498.99. So it’s made a nice move up, and had it fallen below Tuesday’s low, that would’ve been another story. So it looks like there’s a chance that the S&P 500 could move back up to the recent high of 1531.

Federal Reserve Chairman Ben Bernanke said in his testimony on Capitol Hill that he’s going to keep the punchbowl in place until unemployment levels drop below 7 percent, and that will likely be a couple more years. So the market celebrated that, and it seemed to ignore the ominous warning from the White House about the dire effects of upcoming spending cuts due to begin on March 1. So if we continue to ignore Washington, then perhaps the market will move right back up to 1531. That’s when the rubber meets the road.

Now we have had some wide price swings in the last week and a half here, and the S&P 500’s average true range (ATR) is moving up decidedly. When that happens, it indicates  the market is becoming more volatile. If the ATR continues to climb on the daily S&P 500 chart, then that tells me that the bulls and bears are disagreeing, even though the market is moving higher. Therefore, the next four or five trading days are going to be very important to see if the market volatility picks up, and if each and every day has wider and wider price swings, or if they come back down to narrow range days, which could potentially lead to higher prices.

EQ: Last week, you warned readers about possible weakness with solar stocks and Guggenheim Solar (TAN). It looks like you were right to be cautious there. Are you still watching that group?

Turner: It’s going to run its course until/if oil prices start to move higher. First Solar (FSLR), one of the industry leaders for solar, did swing to a fourth quarter profit. Their revenue strengthened, but they provided weak guidance for the current quarter. Consequently, FSLR fell dramatically on Wednesday. And as it’s an industry leader, other solar  stocks followed it lower. So if you take lower oil prices and couple that with First Solar’s guidance for the current quarter, it really knocks the solar companies down a notch. I’m not watching it and waiting to get in, but if oil starts higher, then I might look for a few tradeable  opportunities in solar.

EQ: There’s been a lot of attention paid to Apple (AAPL) since it’s fallen from its peak and hasn’t really moved since. Does that play interest you at all or do you think there are better opportunities elsewhere?

Turner: I like Apple if it can stay above $435, but it’s in a downtrend right now trading at $443. I don’t typically buy stocks in a downtrend, especially when they’re trading near their low of the day. Until Apple shows some strength, I see other stocks that have very nice patterns and pay really good dividends that I’d honestly rather be in. It’s in a place right now where it could be a very promising buy or it could turn out to be a big mistake. That, to me, is gambling and I’m not a gambler. The question I always ask myself before I buy a stock is if it’s the best stock for me to be in right now. Although we can’t know that exactly with 9,000 or so stocks out there, I can think of a few that are doing really well, pay really good dividends, and won’t keep me up at night.

EQ: What are some sectors and groups you’re watching now?

Turner: A group right now that looks like it may come out of the doldrums is the Utilities sector. Utilities do well if the market is uncertain. Right now, it’s one of the few sectors that didn’t take a hit in the last week and a half. It maintained a nice uptrend and it’s been consolidating for the last few days instead of falling with the broader market.  In Toni’s Market Club, we’re watching a Utilities name called Exelon Corp. (EXC) as a bottom-fishing play because it has sold off and may be able to move up here. But the Utilities Select Sector SPDR (XLU) itself is really what I’m watching and it looks as though it could break higher here.

Another ETF I’m watching is the PowerShares Dynamic Media (PBS). It didn’t break support dramatically in the market’s recent downturn. It doesn’t have enough volume to trade intraday.but it may provide an opportunity for long-term traders and active investors. Top holdings are News Corp. (NWSA), Discovery Communications (DISCA), and Walt Disney Co. (DIS). I think media  could be a winning industry group for the rest of the year.

[Image via Flickr]

As the markets put the debt ceiling debacle in the rearview mirror, more than a few issues remain open.