It’s become pretty clear that the bears and bulls are once again engaged in a game of tug of war. While bulls are hoping that the recent pullback is nothing more than a moment of rest before the market resumes its run higher, bears are hoping that the hot streak stocks have enjoyed is finally cooling.
While uncertainty in the market does create opportunities, sometimes the best idea is to stand clear and let the dust settle before choosing a side. We asked Toni Turner of TrendStar Trading Group how she plans to approach this volatile market, and which specific groups she’s keeping a close eye on.
EQ: In our last interview, you discussed some key levels on the major indices that you were watching--mainly 13,000 and 12,845 on the Dow, and 1357 on the S&P 500. The two indices actually fell below those marks recently. Has this caused you to adjust any of your strategies?
Turner: Yes, I have actually moved more into cash and am watching the events unfold in Greece. Of course, we also saw the recent JPMorgan (JPM) trading losses. So I’m happy to let the bulls and bears duke it out here while I observe. As soon as I determine what direction this market thinks it wants to go in the upcoming week, then I’ll jump back in.
EQ: As the market continues to work it's way lower, opportunities may become more attractive to investors with looking for bargains. Do you have any advice for investors or traders here on avoiding falling knives?
Turner: Here’s an interesting exercise ... when you’re looking at a price pattern of an index like the S&P 500 or the Nasdaq, block out the name of the index and then look at the chart. Now ask yourself, if you don’t know what the asset charted is—now what is your opinion? It’s an interesting experiment because if you look at the price pattern and think it’s going down, you’re probably right. So at the very least you might want to be play it careful and stay in cash or have smaller position sizes in order to protect yourself from risk. It only makes sense this time of the year. We have a lot of problems in Europe, and we have our own headwinds in the U.S., so I’ll let the bulls and bears battle it out and wait until the market makes up its mind.
EQ: Any sectors or groups that you're looking at now? What about other asset types like gold?
Turner: I think gold has to go lower here, but I certainly have an eye on it. I’m looking at the SPDR Gold Shares (GLD) at the $148 area. I suspect the U.S. dollar to go up here a little more, which may take gold lower. So I’m watching GLD at the $148 to $150 range, and then I’ll revisit it at that time.
Another group is solar and alternative energy stocks, which still look lower, but at some point they should reach a bottom here. So I’m just watching them to see when they do. In upcoming weeks, I think there will be opportunities in solar, coal, and, of course, natural gas stocks, which we talked about last week. Natural gas has moved higher, but it could be seeing a pullback soon, which could create opportunities for re-entry.
I’m also watching biotech because that industry group doesn’t always care what the rest of the market does. Many times, biotechs move to the beat of their own drummers, which are mainly clinical trials. I’ve been watching the SPDR S&P Biotech (XBI) carve a decent base since February. Right now, since biotechs appear to be disinterested in the problems of the rest of the world, if they can rally on their own strength, that ETF, could break out.
EQ: There's been a lot of talk about the Facebook IPO some time this month. What are your thoughts on trading IPOs on their first days, especially with the huge ups and downs we've seen in the last year? Do you just stay away from them entirely?
Turner: I stay away from them. I’m happy to trade volatile stocks, however, as a trader for many years, I’m not OK with trading an instrument that doesn’t have a price history. If it doesn’t have something I can refer to, like price history that goes back at least several months, then I’m uncomfortable trading that. We know that there’s a terrific amount of emotion wrapped around Facebook (FB), and no doubt it will be very exciting. There will be a lot of hyperventilating as it goes higher, and certainly a lot of groans as people take profits. But I prefer to get into a stock where I can see earnings grow and they have a clear business model as well, and I have no way of charting that here. For me, I simply know easier ways of making profitable trades. To answer your question, I’ll watch the Facebook IPO with interest but I won’t be trading it.