Panic may be setting in on Wall Street. Stocks tumbled hard in May, and uncertainty in June could be a source of more uneasiness for investors. However, this is when good investors and traders understand the importance of keeping their heads clear.
In previous interviews with Toni Turner of TrendStar Trading Group, the educator has espoused the virtues of staying disciplined and being prepared for any market condition. With conditions as tumultuous as any time in recent memory, we picked her brain on the proper approach and mindset for this market.
EQ: Stocks are plunging again after a round of disappointing economic news. Is this the catalyst that bears have been looking for, or are the sidelines still the safer bet?
Turner: This is certainly an ugly scenario, and the bears have had it pretty good now on an overall basis for the last month since the S&P 500 broke down below 1357, and as of Friday, below the 200-day moving average, which now sits just over the index, at 1285. The index has support at 1268 from the December highs of last year, and of course, at 1258 from the open of 2012. We are watching 1250, as well, as a key line of support. We are coming into support zones now where with any encouragement from Europe, we could get a bit of a bounce.
With that said, however, I still think that, especially for new traders, the sidelines are the best place to be. The thing is, news comes out in Europe while most of us in the U.S. are sleeping. So for U.S. investors, it’s a brand new surprise every morning. Of course, we now also have the headwind of negative economic news in the U.S., with last Friday’s ugly jobs report and ISM numbers, to deal with. They just added to the pain.
EQ: Gold has traditionally been considered a safe haven for investors, but in this current market climate, do you think that is still the case?
Turner: It certainly has sold off; that’s for sure. Gold has not provided safe haven qualities since the market turned down in May. Personally, I have never considered gold to be the safest haven, but there is an argument for keeping a small part of one’s portfolio in it. Right now, however, I do believe that if global economic conditions worsen, and if QE3 really becomes a reality, I suspect that gold would climb in that case. But I would not categorize that, at least from my own perspective, to be a safe haven approach. Anything that moves in price and can do so with great volatility, to me, is not a highly desirable safe haven.
EQ: We’ve discussed the importance of staying calm and disciplined during chaotic periods in the market in previous interviews. Is this a good example of one of those periods?
Turner: It really is, and like anything else in life, the longer you’ve been a trader and investor, the more you understand that this isn’t our first rodeo. The world doesn’t ever come to an end, thank goodness. And, there’s really two ways to trade and invest in the market. There is the proactive mindset, which means you are in control of your plan and strategies and what you do relative to the market. Then there’s the reactive approach, which means every time something terrible happens, you feel vulnerable, get stressed-out, and maybe dump your positions without strategizing.
The proactive approach is the one I teach and the one that I like to maintain for myself. It’s the old mentality of either you are in control of your trades or they are in control of you. From my experience and the years and years I’ve been doing this, and making decisions in panic mode has never been the best place to come from. We have had plenty of warning that this market was weak. Unless you lived under a rock, you would certainly know that we had two-and-half years of Europe having problems and the surprises in that arena. We’ve heard the warning, “Leave in May and go away,” a million times. We had the same warnings in May of 2010 and 2011, and they were accurate. So I would say that keeping a proactive mindset versus a reactive approach is really the best thing that traders and investors can do. Maybe that meant taking some profits off the table when market weakness became obvious in April and May, after a dandy run up since last October. It did for me.
EQ: For investors and traders looking to cut their losses, what are some words of advice that you have for them to avoid panic selling?
Turner: I would suggest that people watch the S&P 500 and look at the areas of support that I mentioned earlier. If we do get a bounce some time soon, people may want to consider taking some of their positions off the table into the positive price action, assuming that they haven’t done so already. Certainly, just throwing positions away when we’re talking about high-quality companies may not be the wisest thing to do. No one knows what is going to happen in the future, but everybody has their own set of risk levels and risk tolerance. Everybody has a different time frame as to when they need specific progress for their investment goals, whether it is for retirement or college planning or something else. All of that has to come into consideration. So again, if people are more comfortable weeding out some positions that they feel might go lower, then it should be done, because the most important thing at the end of the day is the ability to sleep at night.