SPY Model Still On Green

June 1, 2016

SPY closed May 31, 2016 at $209.84 per share.

SPY’s 200 day moving average of price closed at $ 199.97,

At 4.9% above SPY’s 200 day moving average the BUY signal for SPY remains in effect till the close June 30, 2016…..if you follow the back tested model I follow….which has generated only six trades since January 1, 2000…..five of the six SPY trades have been winners. The model has dramatically out performed BUY and HOLD.

I use the SPY model more as the backdrop for all my market decisions.  I, personally,  would not go out and buy SPY at $209.84 per share. Instead, just yesterday  I wrote 10 contracts to buy  SPY at $200, even if the price of SPY is $190 or lower at the options expiry  July 15.  I was paid a premium ( yesterday ) of  $1.07 per share to make this commitment.  This will work out to be 4.339% per annum .  The annual dividend for a shareholder of SPY is 2.20% per annum.  So, I am being paid more than twice the annual dividend of SPY ( now, not quarterly ) ) to be bullish on SPY at $200 per share.

If SPY had closed on May 31, below its 200 day moving price average, sell signal ,  I would not have made this trade. I would have been trying to guess how much SPY would sell off  and would use some of my sidelines money to write contracts to buy SPY,  at that estimated  level, for a greater premium… and continue to nibble in this fashion as SPY moved lower.

In this way, I would be averaging down my cost of SPY, something I would not do with any stock,  which could be sent to zero.  SPY will eventually come back, even if my heirs need to show some patience !

At some point soon, I will amend this post ( in upper case, as a postscript  ) to update your wealth effect if you ignored the December 31, 2015 sell signal and had continued to hold till  today ….versus following the model exactly. ( SEE POSTSCRIPT BELOW )

Richard Maurice Gore

PS: IF YOU DID NOT SELL YOUR 4,905 SHARES OF SPY ON JANUARY 4, THEY WOULD NOW BE WORTH $ 1,029,266…2.93 % EXCLUDING         DIVIDENDS

IF YOU FOLLOWED THE SPY MODEL AND SOLD JANUARY 4 AND THEN REPURCHASED AT HE BUY SIGNAL, YOUR 4,786 SHARES             WOULD  NOW BE WORTH $1, 004,294., EXCLUDING DIVIDENDS.

The model has no chance to get even until after the next sell signal.

 

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