After enjoying a mostly steady summer, investors and traders are now back in the thick of an increasingly volatile market due in large part to the squabbles going on in the nation's capitol. While up-and-down price swings does create more opportunities to find short-term profits, it also creates more chances to give back those profits–if not more. In this week's interview with Toni Turner of TrendStar Trading Group, we discuss her thoughts on the current market environment.
EQ: As we approach the Oct. 17 deadline for the debt ceiling, the market is becoming more susceptible to major swings from the ongoing debates on Capitol Hill. From a trader’s perspective, do you see this as more of a trading opportunity or elevated risk?
Turner: It depends on what timeframe you’re trading on. It’s a great short-term trading opportunity, and by that, I mean day trading, and holding only your most conservative positions overnight. So, for day traders, I think the recent volatility is a great opportunity to earn short-term gains.
As far as holding high beta names overnight, I am not doing that right now. Until an actual resolution takes place in the Washington, DC deadlock, I am not going to be backing up the truck and packing big longer-term positions into my portfolio. We have to remember that a lot of Thursday’s up-move consisted of short covering, which drove up equities prices rapidly in addition to the buying.
I am still cautious here, so I will not be purchasing high-beta names until there isn’t a resolution.
EQ: What are a few high-beta names that are prominently in the headlines that you’re staying away from?
Turner: Those names would include Facebook (FB) , Tesla (TSLA) , Google (GOOG) , and other high growth type stocks. Stocks in the social media ETF and the tech stocks that people talk about are good examples of one area. These high-growth or high-beta names typically have high P/E ratios and small or no dividends, so there’s no reason for people to hold them.
Also, most of the people in these high-beta names, which are also called momentum, and recently “cult” stocks, are traders. Of course, traders are very fickle. I know because I am one. If it looks like the market will sell off, , we have no problem selling a stock in a heartbeat.
EQ: The S&P 500 fell to the 1650 area earlier this week but managed to bounce off of it Thursday. A few weeks ago, you said the 1650 area represented a strong support line. Is that still true now?
Turner: It is still true. I would still look at 1650, and would also look at 1670 because we have a strong uptrend line there. at that level . W e wouldn’t want to see either one of those levels broken again.
EQ: Earnings have just about taken a backseat right now because of what’s going on in Washington. Could this potentially be a good opportunity to find some overlooked value here?
Turner: It could, that is if you want to hold small positions overnight. That said, I am keeping my positions limited. In Toni’s Market Club, during the earnings season, we choose stocks with good potential earnings report that will announce about three weeks ahead. I If the chart pattern is favorable, we may enter that stock on the long side about three weeks before they’re due to report earnings, and hold until just before the earnings date.
We sell it and take profits before the actual announcement. You can attribute this to the old buy the rumors, sell the news tactic. It seems to work pretty well. Again, you have to have the right setup and you have to know about the potential earnings to know if it’s a viable opportunity.
EQ: What sectors or industry groups are you watching right now?
Turner: There are so many great technical setups that have come out on Thursday. So many stocks have pulled back to swing lows, and then bounced off support. This presented us with some fantastic opportunities. Of course, the stalemate in Washington is holding me back from entering many trades. Washington is full of headline risk, and an agreement is not yet a reality.
If we get any kind of agreement over the weekend, I will tiptoe into some positions. There are some sector ETFs that look interesting to me should we reach an agreement. They include: Financial Select Sector SPDR ($XLF), SPDR S&P Regional Banking ETF ($KRE), Industrial Select Sector SPDR ($XLI), Consumer Staples Select Sector SPDR ($XLP), Utilities Select Sector SPDR ($XLU), iShares U.S. Telecommunications ETF ($IYZ), iShares U.S. Real Estate ETF ($IYR), and PowerShares Dynamic Leisure & Entertain ($PEJ).
