While the S&P 500 closed a climactic first quarter with a final push through record highs, investors and traders are now at a point in question of whether the market will continue to move higher, or if the long anticipated pullback will finally take place.
In this week's interview with Toni Turner of TrendStar Trading Group, we discuss what other levels warrant closer attention to determine the near-term direction for the market.
EQ: The S&P 500 managed to close above the previous all-time high on the final day of the first quarter. What are your thoughts now that it has happened?
Turner: It’s all well and good, but I’m not going to be truly impressed until the S&P 500 closes above its intraday high of 1576 logged back in October 2007. That is when I’ll be convinced that we’re going to break out of those all-time highs. What’s more, I won’t be truly impressed until it breaks uses the 1576 zone for traction to move higher. So it still has work to do to continue this uptrend.
We didn’t see a big sell-off on Monday. It looked more like investors were disinterested, but we’ll have to see what happens because I didn’t see a lot of volume. I also noticed that the iShares Russell 2000 ETF (IWM) broke below its current consolidation. That, of course, is the small cap stocks ETF and at times, it acts as a leading indicator. The IWM told me maybe we’re a little weaker here than meets the eye. When small caps break down, that’s a bearish sign. The S&P 400 Mid Cap index also had a negative day Monday, and is down today, as well. I think a lot of this week’s price action will be based on people waiting for the jobs numbers at the end of the week from the unemployment report. They’ll use that to see if they should leave before May, or if they should stick around for earnings.
EQ: The Volatility Index jumped about 10 percent on Monday. Is that move significant while stocks are trading at this level?
Turner: I don’t believe that move, in and of itself is significant, especially since it traded back down at the close, coming off its highs and fell back to almost where it started. It formed a spinning top pattern, which actually means the market is undecided. The VIX right now is trading in the range of roughly 12.5 and 15. The all-time median for the VIX is 18. If it moves above 15, and continues to climb and does so for more than three days, then I’ll go look for my bear hat, but not until then.
EQ: Besides dividend stocks or cash, are there any other markets outside of stocks that you’re looking to as a safe haven?
Turner: Obviously right now, real estate looks good here. The iShares Dow Jones US Real Estate (IYR) reflects that. Anecdotally, in Southern California, where I’m from, we’ve see more and more foreign investors coming in and paying cash for property. In the right location, obviously, and with interest rates being as low as they are right now, real estate looks like a great place to me. That’s certainly true for generating income right now and perhaps a good ROI in the future.
EQ: What stock sectors or industry groups are you looking at this week?
Turner: I am still watching Energy and the Energy Select Sector SPDR (XLE), very definitely. Oil prices are currently in an uptrend. What happens from here, I’m not sure, but even if the macro-economic level picture pushes down commodities prices, which it’s been doing, we have still a lot of unrest in the Middle East and Iran, and headlines out of North and South Korea that impels me to keep an eye on oil prices.
I’m also keeping an eye on the PowerShares Water Resources (PHO), which has pulled back here. It has a lot of industrial names in it, and will pull back with the market. However, if it pulls back, stays above 21.70, and looks as if it could bounce and continue its uptrend, I’m definitely going to watch it for as a potential long position when or if it sets up properly. We’re coming into the summer months and that’s when many investors look at water treatment and water services companies.
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