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Can the Market Bounce Off Its Recent Low?

While stocks got off to a rough start in January, the market has experienced a bit of short-term recovery thus far in February. Whether the longer-term trend is pointing upward or downward remains

While stocks got off to a rough start in January, the market has experienced a bit of short-term recovery thus far in February. Whether the longer-term trend is pointing upward or downward remains to be seen, however. In our latest interview with Toni Turner of TrendStar Trading Group, we discuss key technical levels to watch, as well as a few key areas of the market that is attracting attention right now.

EQ: The latest jobs numbers came in weaker than expected again, but the market responded positively to the data. Why are traders buying into this news?

Turner: If you observed the S&P 500 e-mini futures Friday morning, you would have seen them dive on the news of the weak jobs numbers at around 8:30 a.m. ET. But by 8:45 a.m., the futures reversed higher very quickly. That indicated to me that many traders had planned to buy any dip caused by the numbers and use it as a tradable bottom.

Once the numbers were out, they became “old news,” and this is one volatile economic report that we don’t have to look at again for another 30 days.

EQ: What levels are you watching right now from a technical perspective for a possible bounce or a deeper drop?

Turner: For the S&P 500, I’m keeping an eye on the 1735 to 1740 levels, which of course, are just above the September highs as well as representing those recent lows. If these levels are broken, then I suspect that we get another move down probably to the 200-day moving average. As far as resistance goes, I’m looking at 1800 and 1810, which also represent November highs.

I’m also looking for the S&P 500 to make a higher low. If it pulls back in the next week, then I want to see it make a low above the 1740 level, which would give us more assurance that this is an investing bottom as well as a tradable bottom.

EQ: Switching gears a bit, one area of the market that has been getting more and more attention is the marijuana space. As of right now, most if not all of these companies operate on the over the counter and pink sheets space. How would you advise traders and investors to look at these stocks knowing that they aren’t on the major exchanges?

Turner: Based on all of the stocks that I looked at in this space—particularly the penny stocks—I would advise traders and investors to understand that right now, these are being by traders than investors. And they’re being used as trading vehicles, so that means that they can be extremely volatile. I’ve gotten messages from people saying they were going to bet the ranch because they assume they were assured big gains.

I need to warn people that this may or may not be true, especially in these penny stocks. Playing in these stocks involves extremely high risk. I don’t want anybody’s IRA to go up in smoke.

As we know, solid earnings can run a stock higher for all the right reasons, but I have looked and looked for earnings on these stocks, and for many of them, I cannot find any earnings at all.

EQ: So they’re more like momentum plays than fundamental long-term investment considerations at the moment?

Turner: Yes, they’re momentum plays, and you can’t just buy them and think you’re going to become an overnight millionaire. I’ve seen things like this happen with these kinds of stocks where people bet the ranch and got their heads handed to them.

Right now, many of them like Medical Marijuana, Inc. ($MJNA) and Cannabis Science, Inc. ($CBIS) are extremely overbought. But if any of these are plays, they should be plays with only money that you can afford to lose and with very tight stops.

EQ: That’s probably good advice for any microcap plays in general.

Turner:  It really is because they’re not going up and down on earnings. They’re going up and down based on traders’ assumptions that if they buy huge positions, they will make huge profits. That assumption may not take place. Many microcaps—cannabis and otherwise– are not solid, earnings-producing companies, and they can be here today and gone tomorrow.

With that said, I will not state that all microcaps in general—and cannabis companies in particular—are losers. For example, I’m looking at CBIS and it bounced out of $0.03 at the end of last year and now it’s trading at $0.22. So, at least for now, there are profits that can be gathered. But anybody who thinks they’re just going to buy them and they’ll become automatic millionaires—that scenario may not play out.

In many cases, the industry itself may be here to stay but the companies that are in it now may not be. So that is always important to remember.

EQ: What sectors or industry groups are you watching now?

Turner: I’m watching, and the operative word is “watching,” the SPDR S&P Retail ETF ($XRT). I, and many of my colleagues, were down on many retailers recently. For short-term plays, there have been a couple of good names that have bounced, like Nordstrom ($JWN) and Costco ($COST). But the moves were almost too good, too fast, involving a lot of short-covering, and now these stocks are  hesitating. I am watching to see if they establish new reversal moves to the upside in the coming week

For something a little more stable, I’m watching the Health Care Select Sector SPDR ($XLV). I’m watching that right now bounce off the rising 50-day moving average and it has recently shown very strong volume. That’s a little more conservative and probably a little more dependable.

I also mentioned the iShares US Real Estate ($IYR) in our last interview. There’s some good plays in REITs right now, and I’m still keeping an eye on it. For me, it’s purely a technical play though I know there’s a lot of fundamentals attached to it.  As well, I’m still keeping an eye on the Teucrium Corn ($CORN) to see if it can break above $31.60. It’s been building a base here for some time. 

Copper, base metals, and industrial commodities face bearish technical trends, but the fundamentals remain bullish.