While Technology stocks like Apple (AAPL), Google (GOOG), Microsoft (MSFT) and others have been market leaders for years, investors may be facing a turning point in how these companies are viewed. The transition from desktop PCs and even laptops to more mobile-friendly devices like tablets and smartphones is creating a shift in the industry, and even the best of breed are not immune to some volatility and uncertainty during this period. Given that Technology carries a significant influence in the broader market, this shakeup will impact most, if not all, investors.
In this week's interview with Toni Turner of TrendStar Trading Group, we discussed the impact of Tech's paradigm shift, and where market watchers should be looking at to gauge the health of Wall Street and the economy.
EQ: Last week saw the market close out with one of the worst sell-offs in recent memory and that has carried over to this week so far. Considering how volatile we were expecting last week to be, can traders take some comfort from that fact?
Turner: Well, the technicals are getting uglier. The S&P 500 is now trading below the 50-day moving average, and the CBOE Volatility Index VIX is above $18, and above its 200-day moving average. As we know, the VIX is tied to the S&P 500 and it is known as the fear indicator and volatility indicator. So with the VIX rising and the S&P 500 falling, those are two general indicators that show the market is still very weak. Also, if you look at the cyclical sectors like Basic Materials and Energy, and even Industrials, although they’re still all in uptrends on daily charts, they are all very close to the make-or-break point as far as support zones go for that current uptrend.
EQ: After the major disappointments from the last week, how much does the market need of some good news right now?
Turner: The market needs good news very much now. Of course, Technology stocks are the ones pulling the market down the most. We expected this earnings season to be negative, and it has been. There’s no doubt about it. But if you go down the S&P 500 sectors at the moment, none of them are horrifically ugly except for Technology. So we do need good news right now, but third quarter earnings season is usually always volatile. We also have to be wise with our positions, and I’ve taken my accounts flat for the most part, except for my core positions. This is just something that we as investors and traders go through, but we have to keep an eye on the headwinds that are coming, along with the fiscal cliff and the uncertainty of the election. .
EQ: Speaking of Tech stocks being hammered. What are your thoughts on that sector right now?
Turner: Interestingly enough, if you look at weekly chart of the PowerShares QQQ (QQQ), which tracks the NASDAQ 100, we can see that it is etching a very nice uptrend. That’s the good news. The bad news is that the QQQ is sitting on what has been to-date this very strong major trendline right now, and that actually comes in at around $65. One or two closes below that line would signal a breakdown of a major trendline.
Also, right now, Technology is going through an era change where smartphone sales are up 42 percent this year, and PC sales have dropped 2 percent, which equals a 4 or 5 percent change in income. We’re going through a transition of the end of the PC era and the beginning of an era of big data and of tablets and smartphones. Change is usually chaotic, and I believe that is one reason Technology is so chaotic right now.
EQ: What specific groups or sectors are you watching this week?
Turner: I’m watching the Financial Select Sector SPDR (XLF) to get a feel for the market. It is still in an uptrend and I certainly don’t want to see both Technology and Financials going down. Regional banks are a real drag on Financials right now, so I am watching that as an overall health indicator for the market. Of course, if we want to look at industry groups that are bottoming right now that may have more upside, though I certainly don’t know that for sure, but that’s coal. I know a lot of people have their eye on Market Vectors Coal ETF (KOL) and its components . We also want to keep an eye on the SPDR S&P Retail (XRT) because Retail is an indicator of the strength of the U.S. consumer. Right now, it this is starting to look weak, but generally I’m keeping an eye on Financials and Retail as they will give us an indication of what’s to come in the next couple of weeks.
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