Please tell me where I am wrong !

May 3, 2016

I have been told,  according to a recent  Charles Schwab communication…..For the past 50 years…..nearly ALL of S&P 500 gains came between October and April.

May through October……+ 1.3%…..average

November through April + 7.2%…. average

That reinforces the idea of Play till  May…..

But ,positioned  opposite ” Play till May ” are concepts which are pushing back against it as a course of action.

#1 ..The chart of SPY is in an uptrend with its price $204 above its 200 day moving average, $196.

# 2 Reinforcing # 1 is that SPY’s 10 day moving average is above its 50 day moving average and its 50 day moving average is above its 200 day moving average.  Nice.

#3 Interest rates remain low and the Fed is signalling they will stay low because world wide inflation, including ours, is tame.  Martin Zweig always said that equities tend to go higher when the perception of the market is that interest rates will stay low.

# 4 The average closing price of SPY over the past 52 weeks is  $197….Only 3.55%  below today’s price…so the market is not on an unsustainable trajectory.

All the above being stated,  the truth remains that the market could go lower.  

Since making money in the market is buying great stocks at great prices, I have decided to position myself  to buy SPY at a lower price and to buy more specific equities if the prices of these equities collapse…not as a result of specific causes, but because the market has gone down. I own between 10 and 50 shares of  enough stocks so that it is worthwhile to be in the market , but emotionally can accept a market retreat as a buying opportunity. At this very moment I am discarding equities that don’t conform to my ” be in it ” but ” be ready to buy more ” strategy.

I don’t want any money in fixed income because the return is so low.

My alternate strategy is to sell options that pay me a premium competitive to SPY’s dividend but, if the market corrects, deliver me 500 great stocks ( SPY ) at a price which is about 12% below SPY’s today price.

Therefore, I have sold 10 SPY Put option contracts  expiring July 15 with a strike price of $185, and 10 contracts with a strike price of $180. at a premium level that will pay me the same dividend as if I owned 2,000 shares of SPY right now at $204 per share..

Richard Maurice Gore


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