New Long Trade Idea if SPY Declines

07/17/2017 2:51 am EST

Focus: STOCKS

Landon Whaley

Editor, Focus Market Trader

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. I'm sticking with my long bias for this market and patiently waiting for that pullback before risking any capital.

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, depending on how much room you want to give this trade to move around.

chart

The risk price line in the sand is $233.36. If SPY closes below this price for three consecutive days, then my Long bias has quantitatively been called into question.

From a profit perspective, if this long trade moves in your favor, you should book profits if SPY rallies to the $245.51 to $247.07 area.

Subscribe to The Whaley Report here…

Related Articles on STOCKS

Keyword Image
How to Value Roku
11/22/2017 6:00 am EST

Roku (ROKU) makes those small streaming players that connect to your TV; it has seen its stock rise ...