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The S&P 500 - A Second Quarter Road to Nowhere

Jul 11, 2012
Chad Karnes, CMT

Frustrated with your 2Q performance? The S&P 500 is down since March, but that doesn't mean you can't make money from it.

If you are like me, then you are likely impatient and dissatisfied when an investment does not do as expected.  For an investor, one of the worst things to occur is to invest capital and have it not perform, or even worse lose money.

        At the end of the 1Q, on March 30, 2012 the S&P 500 (SNP: ^GSPC) was sitting at the $1409 level while the price of the SPY (NYSEArca: SPY) was $140 and the IVV (NYSEArca: IVV) was $141.  Since then, here's a sample of the seemingly positive news items over the past few months:     

         “Health Care Ruling a Positive” - WSJ in June

·        ”Greek crisis leads to positive steps” - San Francisco Chronicle in June

·       “Federal Reserve releases GDP estimates of 2.3 to 2.6% annual growth” - News release in April

·        “March 2012’s unemployment rate drops to 8.2%” - News release in April

However, after all of that new information, the S&P 500 at $1341 still sits well below where it did before any of that news.  The market has returned poorly for long term fundamental investors since the beginning of the second quarter.  

For many investors, a few months could be considered a very short time frame and may not change an investment thesis.  For others, a few months is an eternity and even though the market is down since the first quarter, it does not mean the market has not provided opportunity for profiting or for better entry and exit points for both shorter and longer term investors. 

These investors could have benefited by looking at the shorter term swings of the market.  Many would have been better off waiting, instead of putting capital to work as they did at the end of the 2Q.

Some Simple Math

In the second quarter, the S&P 500 has actually moved more than 170 points.  “But, you just said the S&P 500 has performed poorly since the first quarter,” - are you contradicting yourself?

Here is the difference: using monthly opening and closing prices of the S&P 500, the market has actually moved many more points than the static change of down 68 points since the first quarter.  This calculation is performed by adding up the total difference between the open and close of each month this quarter.  This shows that on a monthly basis the market has fluctuated quite a bit over this time and has provided ample opportunities for profits.  We can see this in the charts as well.

This calculation assumes that prices only moved in a straight line from the open to the close.  Using only the opening and closing of each month is actually greatly understating the total movement since we know that the markets do not move in a straight line and indeed cover lots more ground.  The chart below from the ETF Profit Strategy Update shows the price ranges moved in the S&P 500 since March 30.  Notice the different peaks and valleys marking shorter term tops and bottoms throughout the time period.  Also of note is some of our chart analysis that accompanies our commentary.

Click here to learn about more ways to take advantage of different time frames.


Shortening the Time Frame

A shorter term investor can take advantage of more price movements of the market, or a longer term investor can take advantage of the shorter term to help him or her find a better time to put capital to work.  For more aggressive traders, levered ETFs such as the ProShares Ultra S&P 500 (NYSEArca: SSO) or ProShares UltraShort S&P 500 (NYSEArca: SDS) also can be used to take advantage of shorter term time frames. This past month alone, the ETF Profit Strategy Update identified signals to be short on July 5 and long on June 27 capturing two nice moves that longer term investors did not.  These signals would have helped an investor improve profits and timing, even though the longer term investor likely has negative returns since April 1. 

The ETF Profit Strategy Newsletter continuously researches markets such as the US Dollar (NYSEArca: UUP), Dollar Index (NYBOT: DX-Y.NYB), the Euro (NYSEArca: FXE), Euro Index (CCY: EURUSD=X), SPDR Gold Shares (NYSEArca: GLD) and Gold Spot Price (Comex: GCQ12.CMX), The iShares Barclays 20+ Yr Treasury Bond ETF  (NYSEArca: TLT) and the ProShares UltraShort 20+ Yr Treasury ETF (NYSEArca: TBT), and others in order to capitalize on multiple time frames.

The ETF Profit Strategy Newsletter looks at short, medium, and long term time frames to take advantage of markets, even during months that have performed poorly on the surface and are seemingly going nowhere. 
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