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How Traders Can Exploit the Bulls v. Bears Fight to Their Advantage

The increase in recent market volatility may be a cause of anxiety for long-term investors, but for active day and swing traders, the bigger price moves is a nice stream of opportunities to play

The increase in recent market volatility may be a cause of anxiety for long-term investors, but for active day and swing traders, the bigger price moves is a nice stream of opportunities to play on. In our latest interview with Toni Turner of TrendStar Trading Group, we discuss how traders should approach the market's renewed volatility and key levels to watch for directional trends.

EQ: Volatility has picked up the past month. Has this helped to create more opportunities for traders?

Turner: Back in the mid-‘90s when I started trading, our mantra was “volume and volatility.” That’s what we wanted, and certainly, we’ve finally had a good share of that over the last two to three weeks. Still, for traders and investors not used to trading days that spike higher and then dive lower in the same day, or back-to-back days where the market goes straight up one day then straight down the next, this can provide a whole new form of excitement, and sometimes even disappointment if those involved in short-term trades don’t know to take their profits quickly.

So, when we see volatility, or wide price swings, it can provide both opportunities and challenges. Also, if we’re looking at the S&P 500 here, we should note that the average true range (ATR), which is an indicator I have on my chart with a default of 14 days, has climbed to nearly 30 points. We haven’t seen it that high since the end of 2011. That means we still have a lot of volatility in the market, indicating that the bulls and bears are not done fighting. Until we see that volatility decrease, we may see that in addition to really nice moves up, we may experience moves down.

EQ: The S&P 500 bounced off a low around 1865. What levels are you watching for resistance and potential support if the market dips again?

Turner: As far as resistance goes, we see overhead price resistance coming in at 1970, as well as the 50-day moving average coming in there. That is a convergence of indicators, which would make that 1970 zone potentially strong. Now we do see support below at 1925 to 1920, and then again at 1910 to 1900. Of course, we also have that support low of 1865. That’s where the rubber meets the road. Just so, it would be encouraging to see that if and when the market pulls back, and it will pull back at some point, that 1865 holds. It would bullish if we can hold above those levels during this earnings season, and through the Ebola and the geopolitical events going on.

EQ: While the broader markets have managed to bounce off that recent low, the small caps have not participated in the bounce, at least not to the extent that many would’ve liked. What do you see here?

Turner: I see that the small caps, meaning the iShares Russell 2000 (IWM), has prior support at $104. The IWM bounced off $104 and it’s since come up to about $111, but that last move up has been made on very low volume. That’s in contrast to the move down at the first of October.

The move down was made on very high volume, and my way of thinking is we certainly had more sellers than we had buyers. I think a portion of this recovery, as is with many other stocks and ETFs that represent these indices, is that they remain on small volume. So I’ve seen a lot of short covering, and as a result I’m not throwing a party and saying “OK, we’re home free for the rest of the year.” I’m not throwing that party yet. I still want to see higher lows in the next pullback.

EQ: Are there any sectors or industry groups that currently stand out to you?

Turner: Interesting to note, two of the most successful industry groups this year that have not given back almost all their gains like most others are the Utilities and the Utilities Select Sector SPDR ETF (XLU), and the biotech and some of the pharmas. And if we’re to say that Utilities and biotechs are the market leaders, it’s not terrifically encouraging.

With that note, speaking of Utilities, I’m once again back to watching this group. All of these are on pullbacks because almost virtually everything that I’ve looked at except gold has shot up dramatically in the last week. Consequently, they’re not in a place I want to buy. I want to buy at a better price, but on a pullback. I’m once again looking at the PowerShares Water Resources ETF (PHO). I’m looking at the PowerShares Global Water ETF (PIO), and I’m also looking at the Market Vectors Agribusiness ETF (MOO) on a pullback. There are also some of the oil ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), and iShares US Oil Equipment & Services (IEZ) I’m watching for pullbacks from current highs.

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