New Long Trade Idea if SPY Declines

Focus: STOCKS

Landon Whaley Image Landon Whaley CEO, Whaley Capital Group

Trade Idea: New long trade ideas can be initiated if SPY declines to $240.08, or lower. Once you've initiated a new long trade, you can use a risk price between $236.11 and $233.36, asserts Landon Whaley.

The SPDR S&P 500 ETF Trust (SPY) gained 1.4% in the week ending July 14 and closed at a brand new all-time high.

For investors, like me, who want to be long the S&P 500 but who patiently wait for a pullback to buy, it's been a rough year. In 2017, the S&P 500 has experienced a maximum decline of just 3%. This is the shallowest drawdown to start a year since 1980 and it ties the 1995 drawdown during which the S&P went on to gain 34% for the full calendar year.

To put this year's low volatility environment in perspective, the long-term average for S&P 500 intra-year drawdowns is 14%. But don't be fooled that this time is somehow different and this historically low volatility will continue indefinitely. In fact, rising rates coupled with a historic amount of debt leverage in the system and the Fed's reduction of its balance sheet all assure us that a high volatility environment is just around the corner.

Historic market volatility aside, don't ever find yourself chasing markets. Markets don't go straight up or straight down and the S&P 500 is no exception. It's taking a bit longer than prior years but at some point, during 2017 the S&P 500 will give us a decent decline that we can buy.

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