While stocks seem to be making solid progress to retake the all-time on the major indices after the late-January slide, traders and investors still need to be on the lookout for potential triggers that could soften the market. We asked Toni Turner of TrendStar Trading Group for her thoughts on the market's possible directions from here.
EQ: In our last interview, you identified the 1800 to 1810 area on the S&P 500 as a key level of resistance to watch. We’ve since broken through that. What levels are you monitoring now for both resistance and support?
Turner: This is where the rubber meets the road. The S&P 500 is currently trading around 1840, and it could do one of three things. It could flex its muscles and break 1850 to head for new highs, continuing the uptrend. Or, it could soften to trade in a range between 1850 to 1770. Or it could give in to the rising emerging markets volatility and skate back down to the early February support at 1740. I am guessing the range bound market is a good probability.
EQ: The economic numbers that we’ve seen in the U.S. have been, for the most part, encouraging. The concerns and discussions surrounding the sluggish emerging markets and political unrest in other countries around the world, however, are picking up. Do you anticipate the market becoming more sensitivity to news abroad as traders and investors become more comfortable with the improving health of the U.S. economy?
Turner: For the most part, economic reports have been encouraging. However, housing starts and building permits yesterday showed very disappointing numbers and housing is a big part of the economy. We do have a mixture for sure.
The continued revolt in the Ukraine certainly did not concern the market Thursday. Still, we are priced to perfection here. Any unexpected event that are negative could rock the market’s confidence, and “unexpected” is the key word here.
EQ: Earnings for the most part have also been pretty solid. But as the major retailers begin to report and provide their outlooks, could we be looking at a near-term rough patch as they take center stage?
Turner: For retailers, we are probably going to go through a rough patch here. Wal-Mart Stores Inc. ($WMT) came in at the low end of fiscal fourth quarter guidance, reporting earnings of $1.60 per share. Forward guidance also fell short of analyst expectations. Walmart in it of itself is only one company, but it is certainly one of the most important brick-and-mortar retailers in the world.
If Walmart experiences business weakness, then it could be a symptom of broader economic weakness. We can still debate the extreme winter weather’s impact on the recent data points, but we have to face the fact that the world’s industrialized economies move in cycles. We’re late into this cycle and it just makes sense that at some point we’ll see a softening.
That’s can be a good thing too, because it will provide us with some really good opportunities.
EQ: What sectors or industry groups are you looking at now?
Turner: I missed the recent run-up in one of my old favorites, which is the PowerShares Water Resources ($PHO), but I will be looking at it now. For the first time, it is breaking above $26 and I will be looking at that for a pullback.
Another group I like here is the PowerShares Dynamic Media ($PBS). The top components are Google Inc. ($GOOG), CBS Corp. ($CBS), and The Walt Disney Company ($DIS), and we all know that Google can be pretty volatile. The ETF is made up of Consumer Discretionary and Technology stocks. This ETF retraced recently to $24 and then moved back up to above $26. If it can move higher, and even break above $27, I’m definitely looking at PBS as a good place to be. As a long-term trader, I would be able to spread out my exposure a bit more instead of dealing with the volatility of an individual stock like Google.