While the broader markets are trading around all-time highs, the daily trading activity may have investors wondering where the stocks may be ultimately heading over a longer-term period. Mixed news about the economy and a breakdown in the small-cap space may indicate some weakness ahead. In this week's interview with Toni Turner of TrendStar Trading Group, Equities.com gets her thoughts on deciphering the major indices as well as a few sectors that warrant attention.
EQ: The market gapped lower at Monday's open but managed to rally higher on the ISM figures. It closed lower Tuesday. Last week, we saw that the GDP numbers came in way below expectations and the Fed announced it would taper off another $10 billion of the stimulus program. Is the market exhibiting some resiliency here?
Turner: I am noticing resiliency, for sure, but we know that nothing goes up forever. Looking at a monthly chart of the SPDR S&P 500 ($SPY), it’s showing that the benchmark may-- at least in the short term--show some weakness. I’m seeing some dents in the armor here. We had a failed breakout on April 4 where the SPY gapped open and fell hard on high volume. It was also a strong distribution day, and we also had a strong distribution day for the PowerShares QQQ ($QQQ).
I’m also keeping an eye on other indices that may be telling, like the Consumer Discretionary Select Sector SPDR ($XLY). Consumers are 70 percent of the GDP, and if we see weakness coming into the big-ticket items, we may see a pullback in the short term.
EQ: About a month ago, you noticed that the Russell 2000 was starting to show signs of weakness. It’s since taken a stumble and there seems to be a lot of worry about small-cap stocks right now. Is this a trend you think will continue?
Turner: As of Tuesday and Wednesday, the iShares Russell 2000 ($IWM) was trading below its 200-day moving average. This was something that I had been watching closely and I have been worried about. If the IWM breaks lower here, to below $109, it may indicate weakness in the broader indices.
EQ: On your Twitter recently, you said you’re watching Organovo Holdings, Inc. ($ONVO) for the very short term. That’s a stock that has gone through some wild trading over the last six months, with the pop on Wednesday as the most recent example. What are you watching for there?
Turner: I am watching biotech companies in general. I think they’re fascinating and are definitely going to hold a lot of answers to the health and well-being of the human race as we go forward. Then when you take a company like Organovo, which combines 3-D technology with biotechnology, I think it is worth watching.
Now, I do not invest for the long term in small-cap biotech stocks with negative earnings growth. I only invest in stocks that show strong earnings growth . With that said, once in a while baby biotechs are good for day trades, and once in a while, they get acquired by larger companies.
Right now, I’m watching the biotech industry group as a whole because over the long term I think this is going to be one of the places where we can find a lot of opportunities.
EQ: Speaking of Twitter ($TWTR), what were your thoughts on their big drop when the lockup expired?
Turner: Social media as a whole is getting hammered right now. If we look at the Global X Social Media Index ETF ($SOCL), we’ll see that it has been in a downtrend since the middle of March. Many of these stocks just got ahead of themselves and their valuations got ahead of themselves. I don’t know when this group is going to find support and reverse. At the moment, the SOCL still looks weak.
EQ: What are some sectors and industry groups that you’re watching?
Turner: Right now, I’m watching the United States Natural Gas ($UNG). I don’t know if it has any steam left in it, but if the weather gets a lot hotter for June and July, there may be a little action left in natural gas.
I’m also watching iShares US Telecommunications ($IYZ) on a pullback. I’m not getting in today, but I believe in the long-term, there are some very promising opportunities left in this industry.
Again, I’m also watching biotech and the SPDR S&P Biotech ETF ($XBI). It is currently break lower here, but I’m still going to keep an eye on it to see at what point it reverses back to the upside.
I’m also watching the PowerShares Global Water ($PIO) as we move into the summer months. If it can stay above $23.50, it may stand a chance of moving a little higher.
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