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Market Stays Quiet, But Traders Prepare for Potential Moves

While the market has yet to break out of the summer doldrums, the upcoming meeting at Jackson Hole could prove to be a reason for some excitement this week as many traders and investors believe

While the market has yet to break out of the summer doldrums, the upcoming meeting at Jackson Hole could prove to be a reason for some excitement this week as many traders and investors believe that Federal Reserve Chairman Ben Bernanke may unveil a more definitive signal as to whether the central bank will initiate further stimulus, primarily the much-discussed QE3. Regardless of whether or not that happens, the possibility alone could be a major driver for the market the rest of this week. asked Toni Turner of TrendStar Trading Group if she thinks the market may finally get the wake-up call that it’s been looking for, and where she’s looking at for opportunities.

EQ: A note from Fed Chairman Ben Bernanke gave bulls a bit of hope last week when he said “there is scope for further action by the Federal Reserve.” Does this fuel the market for more speculation this week as we approach Jackson Hole?

Turner: It could, but so far, not much has happened. Volume is extremely low but typically, the last week of summer—which is this week—competes with the week between Christmas and New Years as the quietest and most uneventful week of the year. Recently, however, this week has come to be the week leading up to Ben Bernanke’s Jackson Hole speech. If we look at the minutes from the Fed’s meeting, they strongly hinted that action could come soon, but improved economic reports issued this month could forestall the easing. Action in the equities market has been very quiet. The only place we can look to see what people think may be coming is the U.S. dollar. We can see that it’s falling, so obviously people are selling the dollar and we can see gold and other metals rising. That’s a sign that investors believe some stimulus can come sooner rather than later.

EQ: Apple (AAPL) continues to push higher after last week’s patent ruling. Is this an opportunity that you’re watching?

Turner: Well, there are all kinds of fundamental reasons still and, seemingly as always, reasons to buy Apple here. For long-term investors, that may be fine. However, I use Apple more as a barometer of the market. It takes up a large  percentage of the Nasdaq 100 (QQQ), and certainly has a big share of the S&P 500 (SPY). In the short term, however, the very low volume environment in the stock market right now gives me pause. I’m watching Apple as it gapped up Monday and holding $670 today, so far. While  that’s certainly impressive,  I am also monitoring   daily charts of Apple and its 14-day ATR, which has been rising for quite a few days. That shows volatility is coming into Apple, which means the bulls and bears are arguing about what to do next. I will continue to watch Apple closely, as it is certainly a market leader.

EQ: Concerns of Tropical Storm Isaac pushed gas futures higher, but oil prices lower. How has this storm threat impacted the energy sector? How do you plan to play it?

Turner: When gas prices move higher and oil prices move lower, we call that the refining margin, which is the difference between crude oil cost and gasoline prices. It’s also known as the crack spread. In that particular situation, oil refiners are the ones that tend to benefit. You can watch this easily if you can’t access oil and gasoline futures by following the United States Gasoline Fund (UGA) for gasoline to see which direction that price is going. You can see the direction of oil prices by watching the United States Oil Fund (USO).  When gasoline prices are higher and oil prices are going lower, refiners are the equities  that typically benefit. I’ve gone through some of the refiners right now, and the two that I see basing here are Hess Corp. (HES) and Marathon Petroleum ( MRO). Valero Energy (VLO)—in particularand Tesoro Corp. (TSO) have already started to move. Traders  do need to be careful here because if this spread begins to narrow, refineries could give back a little of this momentum.

4. Are there any other sectors or groups that you’re watching this week?

Turner: I’m watching Utilities, and they’ve been really beaten up. One of the reasons is interest rates are rising and that’s bad for Utilities because they need low interest rates since their service costs are so high. So they’re pulling back, but the Utilities Select Sector SPDR (XLU) here shows that perhaps it’s finding a place to maybe move higher from here. I’ll give that a few more days to play out. The other industry group I’m watching is the iShares Dow Jones US Real Estate (IYR). It, too, is interest-rate sensitive. So as long as interest rates don’t begin to go decidedly higher, and if the IYR can stay above $64.50, this industry group can pay out some dandy dividends.

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