3 Sectors Investors Must Watch

03/21/2013 7:00 am EST

Focus: STRATEGIES

Despite some pullbacks ahead, Michael Turner of CycleProphet thinks the market-especially these specific sectors-still shines with potential.

Nancy Zambell: My guest today is Michael Turner, the president of CycleProphet, from Austin, Texas. Mike, thanks so much for joining me.

Michael Turner: Thank you Nancy. I am delighted to be here.
 
Nancy Zambell: Why don't you tell me about your service, and especially about the new one that you are launching?

Michael Turner: We have developed a set of tools for traders and investors to use to improve their ability to make really good stock and ETF picks, including timing as to when to get in and out, forecasting what those equities are likely to do into the future, and fundamental and technical analysis of each.

We are launching a new free service called Free Trade of the Week. In our services, we provide portfolios that our clients and customers follow, with equities that can be autotraded through thinkorswim and TD Ameritrade.

But one of the things we want to do is to let folks get an idea of what we do, so we are going to offer a free service, called Free Trade of the Week. Every week, we are going to post it on the Web site and send out a Tweet to let everyone know that the trade is there, and they can go check it out. It's probably about two weeks away, but then you can go to our website and send us an e-mail, and we will get that set up for you as soon as it's available.

Nancy Zambell: That's great. We love free!

Michael Turner: We have developed some very sophisticated but very easy-to-use tools for timing, which is what separates those who make money and those who don't. At the same time, our equity forecaster goes out 90 days and gives you a very good high probability of what that stock is going to do or what the market is going to do.

Nancy Zambell: Speaking of forecasting, what do you see for the market in the next 90 days? We've had quite a nice run. We are down a bit today, based on the Michigan Consumer Sentiment, but do you expect us to keep going up or are you looking for a pullback?

Michael Turner: I actually think the odds are weighing more toward the market going higher. We were forecasting a little bit of a pullback today, so this is not surprising, and the pullback could actually last for another couple of days.

The overall move, certainly on the S&P, looks to move higher for at least the next month. The Dow or Nasdaq-especially the Nasdaq-looks even more bullish, and well into May. It's not a straight line, but you are looking at a fairly substantial move, maybe as much as 7% or 8% higher by the end of May.

On the Dow, it doesn't look quite as robust on the 90-day forecast. Our equity forecaster is showing that the Dow is going to move higher until about the third week of April, and then it is going to kind of flatten out for a bit and maybe go down a bit, and then back up again, pretty nicely, into about the middle of May. And then it kind of sells off again, but still ends up a bit higher than where it is today-but not a great deal higher.

The Nasdaq is pretty bullish all the way. It does have a little pullback, again in the late April time frame and into May a little bit, but then it rebounds.

Nancy Zambell: We've seen technology, financials, and even health care moving ahead. What is your current outlook on those sectors?

Michael Turner: Health Care Select Sector SPDR (XLV), the ETF for health care, looks pretty benign until the early part of May, moving up a little bit from where it is now-maybe about 2.5% to maybe 5% higher. It peaks in May and then sells off a little bit.

The Financial Select Sector SPDR (XLF) looks a little more attractive right now, moving nicely higher until about almost the middle of April, maybe the end of the second week of April-probably about 7% to 8% higher. It does tend to flatten out after that, and it looks a little bit more like what we were looking at on the S&P 500. But it doesn't crash, or anything like that.

A lot of people are saying, "Oh my gosh, the market is way overbought. It's at a market top and you have to be very careful for a big pullback." I agree that there could be some pullback. I mean, the market cannot go up forever.

Nancy Zambell: We wish, Mike.

Michael Turner: We do. But I don't see any big event that is shaping up for a market top. I am a big believer in stops. In fact, Nancy, every trade that I put on, I use what I call an intelligent stop loss, building a stop loss around the stock volatility over the last 12 months, instead of a standard stop loss percentage.

I use a Black-Scholes formula to calculate how much that volatility could move over the next five trading days, and create stops that can range as low as 1% or 2%, but sometimes 7%, 8%, or 10%-depending on the kind of equity and how much volatility it has.

Right now, I am bullish. I'm probably, right now, invested about 90% or 95% in the market, but that doesn't mean that you should not be careful about always having stops in place, just in case something happens.

Nancy Zambell: Yes, that's smart. What is your favorite sector right now?

Michael Turner: I really like technology. It has a very nice move higher for at least the next month and a half. I would be buying stocks on pullbacks in technology.

Industrials look pretty good, but not right now-maybe another week away. Energy is beginning to look pretty good. It's going to pull back for about another week or so.

Gold is not very good right now; it looks like it continues to move lower. If I look out even 90 days, we get a little bit of a bounce in May-still not as high as it is today-and then it drops back down again.

Silver looks pretty ugly, as well. It actually looks worse than gold, like it's going to drop between now and the end of May, and it could get down into the $23 to $24 range.

The only other thing that I would be careful about is I do think that bonds are probably pretty much at a high. From the indications I have, it's probably better to be out, or at least be thinking about getting out of bonds at this time.

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