A Solution To Our Problems

The S&P has gone nowhere for over 12 years, returns have not kept pace with inflation, and equity investors are looking for a solution.  Here is a solution.  This is not a solution to the economic woes that are burdening our economy, but rather to the impact that those problems have on our investments.  It is time to lift that burden.

Before anything else, Wall Street is very short-sighted and they almost all have a vested interest, so be cautious of the people who tell you to ‘buy and hold’ in the face of the problems that exist in the current economy.  Typically that advice will come from a stockbroker or investment advisor that wants to keep you invested with a money manager to keep generating fees for him and the firm he works for.  Goldman Sachs (GS), JP Morgan (JPM), and UBS AG (UBS) have all been guilty of this.   In fact, it is ingrained in their doctrine.

The table below identifies market performance over time.  It proves to us that problems have existed, and based on what we all know about the economy today we can expect the problems to continue, but we do not have to sacrifice returns like some investors have in the past.  The Strategy I will discuss below has been working all summer, it has been working well since its inception on October 1, 2008 too, but past performance is no guarantee of future results.

S&P 500	3.30.12	1.2.00
Past level	1409	1468
Current level	1404	1404
% Change	-0.35%	-4.36%

Since the end of the first quarter the S&P 500 is down by a fraction, but it did pay a 0.50% dividend and although that payout looks very small it meant everything.  The return figures above do not include dividends, so persons holding onto the market have had some return over the past 12 years too, albeit meager, but that does not even keep pace with inflation.   I also believe that the risk of aggressive decline is very high, so for everyone that just holds and takes what the market dishes out I also expect them to ride a roller coaster over the next decade as well.

Although I offer six different proactive strategies through Stock Traders Daily, here is one that has not only been working very well this summer, but one that has also been working very well since its inception.  Since the Market peaked at the end of the first quarter our “Swing Trading Strategy” is up 12.57%.  Since its inception on 10.1.08 this strategy is up 91.55%, compared to only 19% for the S&P as well.  In fact, in the month of August alone this strategy is up over 5%, so it is working well this summer too, when everyone else is complaining about sideways market action.

Our swing trading strategy is simple, I will explain how it works, but do not mistake my intention here.  You do not need to follow this proactive strategy, but instead use it to recognize that there are alternatives out there.  Investors do not need to spend another twelve years taking it on the chin like they have the past 12 years, we all know there are problems, and this strategy is an example of a solution.

The Swing Trading Strategy uses Proshares double short NASDAQ ETF (QID) and Proshares double long NASDAQ ETF (QLD) to trade pivot points in the NASDAQ.  To make sure this strategy is okay for IRAs, it is never short, but instead we use the 2x short ETF when we want to short the market; our IRA clients also use RegT margin for their IRA accounts.  We do not trade stocks in this strategy, because stocks are too complicated, but we find markets to be much easier.  When coupled with almost exactly correlated ETFs this process becomes not only less cluttered, but it also becomes incredibly efficient.  It is that simple.

There are alternatives to buy and hold strategies, and our Swing Trading Strategy is one of them, but it is not the only one.  Recognize that alternatives do exist, but also recognize that the best time to engage in proactive strategies that integrate risk controls is when the market is at a relative high.  That is where it is today.  Get proactive now, consider your alternatives, and do not let the problems in our economy hurt you anymore.  We all can do this but it starts with admitting that problems still exist, and they do.

Support and Resistance Plot Chart for

Real Time Updates for Repeat Institutional Readers:

Factset: Request User/Pass

Bloomberg, Reuters, Refinitiv, Zacks, or IB users: Access Here.