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Long Trade Idea if SPY Declines

05/22/2017 2:51 am EST


Landon Whaley

Editor, Gravitational Edge

Today’s trade idea: New long trade ideas can be initiated if SPY declines to $235.14, or lower, suggests Landon Whaley, Founder and CEO of Whaley Capital Group, in his weekly trade idea.

SPDR S&P 500 ETF Trust (SPY) declined 28 basis points in the week ending May 19,  but the muted return doesn’t tell the whole story.


On Wednesday, the S&P 500 experienced the largest sell-off in eight months but it’s going to take more than Trump impeachment speculation to start a severe correction in US equities. As Bloomberg pointed out, Wednesday was the fourth day this year in which the S&P 500 rose or fell by more than 1%. Similar moves have occurred on at least 38 days each calendar year since the end of the Great Recession. In fact, the S&P experiences moves of more than 2% an average of 4 days a year. Point being, that while stock market bears finally have something to talk about, Wednesday was nothing out of the ordinary.

Fundamental Gravity: Bullish because US growth is accelerating and the US Dollar and US Yields remain elevated above critical levels. Those levels are $96.40 on the US Dollar Index and 2.16% on the 10-year Treasury.

Quantitative Gravity: Bullish because of a massive twelve-month rally characterized by increasing volume and falling volatility. It doesn’t get more bullish from a quantitative perspective.

Behavioral Gravity: Bullish because investors aren’t bullish enough on US equities. Investors’ positioning in the S&P 500 futures contract is just slightly long and a long way from being a crowded and consensus trade. Not only that, but investors have actually yanked $11.5B out of the SPDR S&P 500 ETF Trust (SPY) so far this year. 

Trade Idea: New long trade ideas can be initiated if SPY declines to $235.14, or lower. Depending on how much room you want to give this trade to move around, use a risk price between $232.68 and $228.50. Your initial profit target price range for this trade idea is between $238.64 and $240.67.

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