Tale of 2 Tapes

July 2, 2015

SPY ( S&P 500 Index ) closed 2014 at $205.54. …. It closed June 30, 2015 at $205.85.

What’s going on here ? ….. Not exactly a wealth recipe !

On the other hand, the SPY trade of December 30, 2011 is still marching on.  This trading theory requires you buy SPY if it has  penetrated and closed above its 200 day moving average on the last day of any month. The last day of the previous month should have found it below its 2oo day moving average. I have been waiting 878 days for SPY to create a sell signal and it still hasn’t.  During this time, SPY appreciated at an average annual gain of 21.71%…..without me on board!  ….That 21.71%per annum is a wealth recipe !

Even though I’m not in the trade, I am using this SPY trade as a signal that its safe to swim. When SPY  takes its month end dip below its 200 day moving average, I’ll consider that either a Great White Shark sighting or a Black Swan sighting.  Take your pick ! ….I’ll be gone !

SPY represents the” varsity ” of the  USA economy which presently  is considered healthy enough to foster a debate about when the FED will raise interest rates.  But, these 500 SPY entrants  perform on a world stage either by conducting operations overseas or by exporting to the world….so the dollar’s strength has a head wind  influence on profits.   Additionally,  15.3 % of SPY holdings are in the financial services sector ( including banks ).  Bank’s , yearn for an interest rate hike to ensure a profitable loan book…..And,  7.8% of SPY holdings are in depressed energy names.  It’s the pulling and pushing of this mixed SPY  bag of 500 which is dictating that SPY follow a flat biased upward trajectory.

So,  if you don’t want to watch grass grow,  but are uncomfortable with any more than market risk ( SPY ),  You may want to consider an alternate slice of market risk which steers clear of the strong dollar and low oil prices. For instance, here are several alternative index ETFs  and their returns  YTD

IWM….the smallest 2000 companies in the Russell 3000 index…..5% return YTD

MDY….Tries to match returns of the S&P Midcap 400 ( average market cap of each included stock $4.9 billion versus SPY…$ 73 billion.  This ETF has appreciated 4.5% YTD

VTI…holds almost every liquid USA stock and includes 3,800 holdings in its basket. Return 2.5% YTD  with the largest 500 of the 3800 acting like a sea anchor.

If you are willing to accept more risk for more return, you may be willing to assemble a small portfolio of Sector ETFs to complement IWM and MDY.  Such as Biotechs as represented by XBI, 49.95% appreciation  since November 3, 2014,  Health Care as represented by XLV,  11.66% return since November 3, 2014, and Defence / Aerospace as represented by ITA with an 8.19% return since November 3, 2014.  These are not indexes, so you are relying on stock pickers selections  for the ETF.

In my opinion….

#1   There are a lot of people who want the market to correct but it resists giving ground for more than a day or two…an indication of its internal strength.

#2  The USA can’t raise interest rates in any meaningful way until signs of over heating are prevalent because it will cause the dollar to strengthen to the disadvantage of USA international companies

#3  As long as interest rates remain low and alternative investments can’t compete with USA earnings yields,  intelligently selected equities will continue to prosper.


Richard Maurice Gore


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