The big question so far in 2014 is whether stocks are preparing for the long-awaited pullback. After experiencing such a pronounced year for the bulls, it's only natural that most traders and investors to anticipate a bit of profit taking. In this week's interview with Toni Turner of TrendStar Trading Group, we discuss the market's current appetite for risk and whether the lukewarm earnings for Q4 may affect it going forward.
EQ: Gold and silver have bounced over the past month. Do you expect anything out of precious metals for 2014, considering how bad 2013 was for them?
Turner: For now, I have reverted to just going by the charts until we see inflation come forward, which we’re not seeing any signs of right now. Although, I do wonder if any of the economists who crunch “no inflation” numbers have visited a grocery store recently.
EQ: It seems like the sentiment toward gold is that it will stay in a range-bound trading mode for a while.
Turner: Right. What I’m doing now in Toni’s Market Club is trading the charts, and we are trading the Market Vectors Gold Miners ETF ($GDX) and the Market Vectors Junior Gold Miners ETF ($GDXJ). They’ve had great patterns for short-term trades, and we’ve taken advantage of them. I think for this particular move, it’s a little late to get in here. I would wait and see now if the GDX, for instance, will consolidate and then start higher again. But again, we’re doing it strictly as a technical play.
EQ: China released their 2013 GDP numbers on Monday. While the growth was a on the lower side at 7.7 percent, some felt that it was a sign that the government is able to stabilize the economic growth a bit. What are your thoughts on China being a driver for trading opportunities?
Turner: China’s ability to stabilize hinges on the government promoting gains in exports and helping China remake its economy. China is no longer operating at full speed. As you said, 2013 GDP matched 2012 GDP. And on Friday, China’s manufacturing numbers came out lower-than-expected. So they have a lot to address in China.
They need to address pollution, wasted spending, corruption, and unfortunately, they need to put a tighter lid on credit growth and close some non-functioning factories. Those kind of actions probably won’t do anything to boost their economy in the short run. With China’s size and population, any steps they take toward stabilization in the economy will probably be made in small steps, and improvements will be very gradual.
EQ: Earnings season so far has been somewhat of a mixed bag. What were your thoughts on some of the recent reporters like IBM? What are some that are currently on your radar?
Turner: Yes, earnings have been a real mixed bag so far. JP Morgan ($JPM) came in a little better than expected, while GE ($GE) matched estimates, Best Buy (BBY) was awful, and IBM ($IBM) beat on profit but missed on revenue. If earnings continue to come in soft, we do have to wonder if stocks are overpriced—not in a bubble, but certainly not a bargain.
On Monday, I’ll be watching Caterpillar ($CAT) for the Industrials and of course Apple ($AAPL) after the close.
Next Tuesday, I’m watching Archer Daniels Midland ($ADM) for the agriculture stocks, and NextEra Energy ($NEE) for utilities.
EQ: What are some sectors or industry groups that you're watching closely?
Turner:Well, I’m back to Utilities. I’m looking at the Utilities Select Sector SPDR ($XLU), which has certainly been beaten up this year. Now, with the broad market shaky, money is moving into the XLU as a safety trade. A couple of companies in this space that may have put in tradable bottoming bases may be DTE Energy (DTE) and Exelon (EXC). They are bottom-fishing candidates, but traders need to know that bottom fishing is art. Anybody trading these stocks needs to be aware of when their earnings come out and make sure they have very definite stops.
EQ: In our past conversations, you’ve said you used the Utilities sector as a gauge of the risk appetite of the market. Does the fact that the sector having been beaten up so far indicate that the market still has a healthy appetite for risk?
Turner: The appetite for risk has been there all year, for the most part. We know for 2013, the S&P 500 was up just over 28 percent. So it’s been risk-on except for a couple of little dips in September and October, it was pretty much risk-on for the rest of the year.
So when it’s risk-on, Utilities become very unexciting. They’re the wallflowers, and when interest rates started to rise in the first half of the year, that put Utilities at a disadvantage.