Today's Long Trade Ideas if SPY Declines

06/16/2017 2:51 am EST

Focus: STOCKS

Landon Whaley

Editor, Focus Market Trader

Today’s trade idea from Landon Whaley: New long trade ideas can be initiated if SPY declines to $239.89, or lower. Depending on how much room you want to give this trade to move around, use a risk price between $236.11 and $233.36.

The SPDR S&P 500 ETF Trust (SPY) declined approximately 60 basis points in the week ending June 16. The Fed was center stage with another rate hike and plans to start scaling back the balance sheet.

Despite inflation sliding for three consecutive months, Janet Yellen expressed confidence the Fed would hit its 2% inflation threshold before the year was out. Bloomberg put it best, “the Fed’s actions and words struck a careful balance between showing resolve to continue tightening in response to falling unemployment while acknowledging the persistence of unexpectedly low inflation this year.”

There are many money managers out there, you know who you are, who believe you should buy stocks on rallies. These momentum junkies typically end up with a day job as a Walmart greeter and “investing” in lotto scratchers, once the momentum reverses course. I like my job and my clients prefer their portfolios avoid wreckage and appreciate in value.

That’s why I encourage you to wait patiently for a pullback before initiating new positions or increasing any current allocation you may have to US equities. Remember, we don’t tug on Superman’s cape, we don’t spit into the wind and we don’t chase markets.

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 2.123% 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 miles away from being a crowded and consensus trade. Not only that, but investors have yanked $3.7B 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 $239.89, or lower. Depending on how much room you want to give this trade to move around, use a risk price between $236.11 and $233.36. Your initial profit target price range for this trade idea is the $244.00 area.

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