Tuesday, June 4, 2013

The SPY ETF (SPY) Is Flashing A Buy Signal

Market Summary
The stock market remains in a long term bullish trend as investors are discounting negative data and celebrating positive news. The market is always somewhat disconnected from Main Street and usually the market gets it right when reflecting future political and economic events in current prices. Investors don't believe that the Federal Reserve, White House and Congress are willing to take a chance on risking an economic downturn any time soon. The market for now is telling us that employment is growing at a decent pace in the private sector and the economy is actually improving.

Investor Analysis
With treasury bonds not supplying the returns investors want, investors have few options other than putting money into stocks. Take a look at the SPY ETF (Exchange Traded Fund) daily chart below. You can easily see how the SPY ETF has been in a bullish uptrend all year along with the broader stock market.

Possible Strategy
Invest in the SPY ETF to take advantage of broad-based stock market gains. The SPY is an exchange-traded fund (ETF) managed to track the Standard & Poor's 500 Index (S&P 500). The investment seeks to provide investment results that, before expenses, generally correspond to the price and yield performance of the S&P 500 Index. By trading like a stock, the SPY has continuous liquidity, can be short sold, bought on margin, provide regular dividend payments and incur regular brokerage commissions when traded. The SPY is used by large institutions and traders as bets on the overall direction of the market. They are also used by individual investors who believe in passive management (index investing). In this respect, spiders compete directly with S&P 500 index funds. 

Smart investors looking to benefit from the stock market recent price surge and limit the downside risk are stepping in to buy when prices pull back a bit so that they can get shares at a cheaper price. One theme that has been constant all year is investors waiting on price dips and then stepping in to bid the prices back up. As highlighted in the chart above, the major stock indexes are currently at a level where investors usually move in to buy.
  

By Gregory Clay

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