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Will Stocks Maintain Impressive Run As Earnings Season Progresses?

While the S&P 500 surpassed its record close two weeks ago, it had yet to break through its intraday high until Wednesday. Now officially in uncharted territory, stocks may be clear to run

While the S&P 500 surpassed its record close two weeks ago, it had yet to break through its intraday high until Wednesday. Now officially in uncharted territory, stocks may be clear to run higher if, and it certainly is a big if, economic and market catalysts are able to provide reasons for investors to remain bullish.

We asked Toni Turner of TrendStar Trading Group for her thoughts on major indices running through unprecedented levels, and whether the upward momentum will carry forward.

EQ: Last week, you said you wouldn’t be impressed until the S&P 500 closed above 1576, which was the intraday high from October 2007. Are you impressed now?

Turner: I’m definitely impressed by the S&P 500’s move to new highs, especially since we witnessed such negative economic numbers last week from the ISM manufacturing numbers all the way to the monthly jobs numbers, and that awful unemployment report. It’s amazing, and a bit of a jaw-dropper that the markets can continue on against those kinds of data. However, we will keep dancing while the music’s playing. Now the S&P 500 is in blue sky territory, with no price resistance or former highs to deal with. Both the S&P 500 and the Dow will rise and fall on upcoming events such as those coming in our current earnings season.

In fact, I actually imprinted Wednesday’s market action into my memory bank as one of the most perfect days that I’ve ever seen. All major indices moved higher, and they were accompanied by those that we use as indicators, such as the iShares Dow Jones Transportation Average (IYT) and the iShares Russell 2000 Index (IWM). Now, of course, I will observe the angle of the ascent of the indices. If they go parabolic here, and do so in wide daily ranges, I will keep my overnight and weekend positions small. Parabolic moves built on wide daily ranges can warn of an upcoming pullback. To see this more clearly, we can plot an average true range (ATR) on our charts and we can note that the ATR on the S&P 500 is starting higher. It had been quiet for a long time, but now it’s starting to move up. So at some point, on wide ranging days, usually it means that the Piper is going to show up pretty soon.

EQ: Earnings have been very promising so far. Has anything stood out or are you watching for anything in particular?

Turner: I will be keeping an eye on the earnings reports of JP Morgan (JPM) and Wells Fargo (WFC) when they come out Friday morning. Those are two of our biggest financial institutions and are among the leaders in the banking industry. As much as I’m watching their earnings, I’m also watching their guidance to see what they are projecting for the second and third quarters. Also, I will be watching Technology stocks very closely during this earnings season. I am interested to see the guidance from our more traditional Tech companies like Microsoft (MSFT), Intel (INTC), Cisco (CSCO) for the second half of the year. That will tell me if the breakout on Wednesday has legs, or if it is simply a euphoric move. Obviously, Google (GOOG) and Apple (AAPL) are important to watch, as well.

EQ: Are there any stock sectors or industry groups that you’re paying closer attention to right now?

Turner: As far as being in a buying mode, most sectors and industry groups are overbought right now and I’m not in the habit of buying into overbought areas. One ETF or industry group I’m watching that has been downtrodden in the last year is the global agribusiness and that is represented by the Market Vectors Agribusiness ETF (MOO). Monsanto (MON) is the top component of this particular ETF, and Monsanto has done very well and has probably held up this particular ETF. Some of the other components in this sector include Deere (DE), Potash (POT), and Archer Daniels Midland (ADM). With the exception of ADM, they’ve been pretty beat up this year and we know that the price of commodities has fallen, so I’m going to watch for a possible consolidation and even rebound in this industry group. It is estimated that agricultural output is going to need to double by 2050 in order to meet global demand. So at some point here, the Caterpillars (CAT) and Potash, and other agricultural companies of the world will start to move higher once again, and in that particular case, I will be watching the MOO.

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