Actionable insights straight to your inbox

Equities logo

When Will the Market Finally Put Its Foot Down?

In this week's interview with Toni Turner of TrendStar Trading Group, we discuss the market's need to balance its footing after such an extended run, as well as whether investors have found a

In this week’s interview with Toni Turner of TrendStar Trading Group, we discuss the market’s need to balance its footing after such an extended run, as well as whether investors have found a suitable replacement for Apple (AAPL) as the company’s stock continues to struggle.

EQ: We’re within arm’s reach of the S&P 500’s all-time high. Is that the level that you’re watching or are you watching where the index can move beyond that point already?

Turner: I’m watching it with interest. In my current Market Now, which is the free video I send to my website subscribers every weekend, I reported that the S&P 500 is nearly 10 percent over its 200-day moving average. That’s comparable to the heights it reached when it rallied in April and September of last year. If you go back further than that, you’ll see that the S&P 500 going back to 2009, it rarely trades at more than a 10 to 12 percent premium to its 200 day moving average. It usually has to rollover and come down to find its balance. I equate that to walking up a staircase. If your legs were the price and the staircase was the moving average, we can raise our leg up high to get to the next step, but at some point we have to put our foot back down to the stair case to regain our balance and maintain our equilibrium. Well, that’s what the S&P 500 is doing. I think it could rise to the 2007 highs, but at some point there, I truly think we will get a short-term pullback in the next week or two.

EQ: You noted that the volatility index is at extreme lows right now. Is this a cause for concern or does this calm market put you at ease?

Turner: I’m a trader; nothing puts me at ease. [Laughs] The last time the VIX was this low was five years ago in March-April of 2007. We want to watch the VIX at extremes, and right now, we can say it is at an extreme. Am I concerned? I’m not because we’ve had so much time to prepare. We’ve seen so many stocks become overbought, and many of us have taken profits on our overbought positions. We know that profit-taking is going to come in, and it’s healthy. The VIX is signaling to us that it may be sooner than later.

I won’t try to call the bottom on the VIX. but certainly when it is at extremes like it is now, we keep an eye on it and use it for information that can help us keep profits and minimize losses.

EQ: There has been talk that Google (GOOG) has become the new Apple (AAPL) in terms of the default safety play stock for investors. If not, is there a stock that may have replaced Apple’s role in that sense?

Turner: Whether it’s a new company or even an established one—any company will have a hard time replicating Apple’s glory era and Steve Jobs’ groundbreaking products. Very few companies can claim to have changed lives the way Apple has changed lives, and it’s done so on a global basis. If you look at a monthly chart of Apple,when it was trading at $7.50 in 2002, and then note how it reached its high of $705 in October 2012, you’ll see the price moved in a relatively smooth uptrend most of the time. If you look at Google’s chart, however, while it’s a great company and it’s price is certainly moving higher, the rally is not as orderly as was Apple’s. While Google investors may make money, I believe they’re going to be reaching for the Maalox bottle along the way. I see a lot of really fine companies out there, but I don’t see an Apple replacement.

EQ: What sectors or industry groups are you watching this week?

Turner: In going over the sectors and groups that I watch, I did notice that the Global Wind Energy ETF (FAN) has broken out of a consolidation and moved higher, while at the same time Solar Stocks (TAN), which is also in the alternative energy space, looks like its consolidating and not doing much at the moment.

Most sectors and industry groups right now are definitely overbought, and definitely trading at 10 percent or more above their 200-day moving averages. I simply don’t want to take on a lot of new risk Here. However, I’ve been following and trading is the U.S. Natural Gas Fund (UNG). For tax purposes, it’s easier to trade commodities-related funds in your IRA because those profits are taxed differently than those of equities. The UNG has made a double bottom here, and it certainly looks like manufacturing is going to start to expand in the U.S. again, which means that demand for natural gas will rise. It’s made a double bottom and it look like even if it does pull back a little here, it looks like it could be poised to go higher. If you want more bang for your buck, traders can trade the ProShares Ultra DJ-UBS Natural Gas (BOIL), which is designed to match twice the daily performance the Dow Jones-UBS Natural Gas Sub-index.

[Image via Flickr]

A weekly five-point roundup of critical events in the energy transition and the implications of climate change for business and finance.