After managing to edge higher last week in the face of quite a few headwinds, stocks may be ready to take a breather as investors and traders await the next catalyst to determine the market’s direction. Whether bulls are ready to build on some upward momentum or bears taking control on the next surprise in economic instability, remains to be seen.
Equities.com asked Toni Turner of TrendStar Trading Group in this week’s interview for her thoughts on key levels stocks may need to hold, as well as possible opportunities she may have her eyes on.
EQ: After enjoying a fairly nice streak of gains last week, investors and traders seem to be taking the last few sessions as an opportunity to take some profit off the table as the S&P 500 is teetering back and forth over the 1400 level. Is this a key level for stocks to hold, or are there other significant points that you’re watching?
Turner: Yes, I think it would be dandy if the S&P 500 could hold 1400 here. However, I would not be surprised—or even upset—if the S&P 500 pulled back to the July highs of 1389, or two levels of support below that at 1375 and 1373. This is August, so it’s typically slow and choppy.
We are in an uptrend and everything looks good, but you can’t blame people for taking profits ahead of September and what will probably be more media output on the fiscal cliff. We still have, of course, high possibility of risk flares from Europe and, quite frankly, we need some good news. If that comes into play, then the S&P 500 could quite likely hold 1400 or move higher. Still, I would not at all be surprised to see at least a mild pullback here in the next week or so.
EQ: It’s been a relatively quiet and slow period in this wild market, with volatility levels and trading volume drying up recently. Is there anything this week that you suspect might give it a jolt in one direction or another?
Turner: I think what could give a jolt is retail numbers that are coming out Tuesday. As you may remember, retail sales declined 0.5 percent in June, or 0.4 percent excluding autos, and the key numbers in that retail sales report were in the discretionary areas, such as home furnishings, electronics and appliances, building materials and gardening equipment. So we need to look for changes to the upside to see if the consumer—which accounts for about 70 percent of the GDP—will start spending again to continue to support the economy. That’s going to be a key piece of news.
On through the week, we have housing reports, as well as the CPI and PPI. Certainly the strength of the housing numbers will tell us more about the health of the overall economy.
EQ: Last week we discussed the development at Knight Capital Group (KCG), and a recent report said that the firm’s trade executions have essentially made a near-full recovery. Are you surprised that it managed to bounce back so quickly? Is this a good or bad thing for the market?
Turner: I’m not surprised because it was a technology glitch and it was fixed. Knight Capital recovered technically, but its stock has not. It’s down 74 percent this month and is still near its recent lows. Of course, the financing agreement helped the company stay in tact, but the stock continues to suffer and only time will tell how long it will take it to recover. KCG is still trading near its recent lows and it’s a very unhappy camper at present. The whole scenario was unfortunate, but as far as any long-term effects on the market, I don’t really think so.
EQ: Which sector or stock groups do you have your eye on this week?
Turner: Yes, because of the retail numbers that are coming out Tuesday, I am watching the SPDR S&P Retail (XRT), which we’ve mentioned here before. I will monitor the ETF not so much as a trade, but more for an indication of the reaction to the economic numbers coming out. Other ETFs or industry groups that I’m going to keep an eye on is the SPDR S&P Homebuilders (XHB), because I want to see how that acts in relation to the the housing numbers being issued later this week. Of course, we’ll also watch the Consumer Staples Select Sector SPDR (XLP) and the Consumer Discretionary Select Sector SPDR (XLY), which will show a reaction to the PPI and the CPI numbers. All of these have moved up in the last week or two, and they’re looking positive now, but I’m anxious to see if they can hold here or if they need to pull back. Of course, if they retrace , it makes sense that the S&P 500 will also be taking a break here.
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