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When Headlines Dominate the Market

The bears and bulls continue to tussle over the economic outlook of both the U.S. and Europe, with stocks serving as the scoreboard. With so many talking heads speculating on the impact of the Fed

The bears and bulls continue to tussle over the economic outlook of both the U.S. and Europe, with stocks serving as the scoreboard. With so many talking heads speculating on the impact of the Fed potentially unveiling some new stimulus package or debating Europe’s rescue strategies, investors and traders may feel lured into the market, taking one side or another.

However, trying to anticipate how the market will react to certain news events may be a fool’s errand. This week, asked Toni Turner of TrendStar Trading Group what her thoughts are for the market’s big week, and where she’s looking during these volatile times.

EQ: Major indices have recently moved past key highs. Should traders brace for some downside moves in the near future?

Turner: I do suspect that we could see a brief pullback in the next day, or two. The S&P 500 is moving up into its 50-day moving average and price resistance from February lows, but now matter how we evaluate it, there’s going to be a lot of “howevers” and “on the other hands” tossed about this week. Now that we’re past the Greek elections, the market will turn its attention to the Fed. Any news from the Fed’s announcement on Wednesday signaling that it will continue Operation Twist or initiate QE3 should move the markets higher. Absent any remarks like those, however, then I suspect we’ll see the market move lower. I It’s quite possible over the next week or two that the S&P 500 could trade in a range between 1335 and 1360, assuming that there isn’t any super dramatic news out of Europe that could turn it lower.

EQ: As you said, Wall Street seems to be speculating a major Fed announcement on Wednesday. Is making a bet on either position a risky play for traders?

Turner: The answer is always, “Yes.” Depending on the level of expertise that a trader has, getting involved on Fed Day can be a risky action. Based on my experience, what usually what happens is that the market already expects positive news out of the Fed, and that it could happen. It’s almost like when children expect their parents to raise their allowance. If the market expects positive news from the Fed on Fed day, that morning can bring a rising market. Then one or two hours before the actual announcement at 2:15 p.m. ET, the market usually slows down as people stand aside and wait for the news.

I advise novice traders to stand aside during the announcement and at least an hour after, as the market can become very volatile during this time. Obviously, it will depend on the message that is delivered by the Fed, but the market can always see news in ways that we don’t anticipate. So my advice to traders who want to trade right after the Fed announcement is that missed opportunities are much easier to make up than lost money.

EQ: Europe’s problems seem to never end, with Spain overshadowing the relief in Greece on Monday as the most recent example. What advice would you have for traders here?

Turner: In Toni’s Market Club, we are staying in the U.S. homegrown companies. I hate to repeat what everyone else is saying, but it’s really the thing to do now. So we’re looking for U.S. companies with good fundamentals, many of which pay a dividend. We apply this strategy even in our short-term trades because if we do wake up to a down market driven by European news, these kinds of stocks won’t get hit as hard. I’ve found that the S&P MidCaps 400 Index is a great place to look for some of these equities.

EQ: Given that the market is very much being driven by headlines right now, do technicals ever get washed out by macro headlines?

Turner: Absolutely. Technicals are price measurements and indicators, which means they simply indicate the health of an index or particular asset. I think the best traders and investors in the world pair up fundamental analysis with technical analysis. Technicals are very important measurements because they can show us a major break below a price support level or a major moving average on a chart, and that signals to us that buyers are no longer willing to purchase that asset. Similarly, a break above price resistance can signal strong levels of demand. That’s all important information, but of course, headlines are going impact the market however investors decide to digest the news. Even with that said, to me, trading or investing without technicals would be analogous to backing out of the driveway without looking in the rearview mirror.

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