SPY

Spy, Fast and Easy is asking about SPY. So, let's just take a look at SPY. I've got some downward diagonal positions on right now. Looking for a down move. Not not expecting a down move, just looking for the hedge uh for the end of the week. We just don't know what's going to happen.

But if we're looking for a bearish position, it it's relatively easy to to look at positions where we can play a very short duration. We can we can buy uh kind of cheap calendars on on spy when the VIX is so low. So this costs 138 bucks, but in the simulator, we end up with a trade that it makes money between 763 and 738. This is not a substantial pullback by any stretch. If there is a big pullback in the IV spikes, this tent gets bigger. Anyways, so we may see that this the stock would have to drop uh you know considerably for 60 or sorry $30 from 765 down to 731. That would increase the IV. It would be IV expansion. Um if the stock goes up, there's IV um contraction and this could cost money, but it's limited to the amount spent. So it's a $139 bet. These can be great. This this trade can make $427. It can make even more if the IV spikes even a little bit. Look at this. Could make 600 bucks. So that could be 4x the money. Probability of profit with a slight increase in IV is 60%. Current probability of profit is 40%. I like to buy some of these in my account.

Now if I want to uh play the other side, I can. I can also go to the call side. This will give me a little bit of upside potential. So if we look at the the calls, we're at 765. So maybe I think that stock's going to run up 785. I'm just looking for something cheap. So 780s I can buy for a dollar. Can I get any money for selling those uh on the on the short duration? So the 780 I would go to this on the chain and I'm going to create a double diagonal. I'm only getting 14 cents, but still 14 cents is is not nothing when you're talking about a low a low term a low trade. This if we don't know market direction, these can be extremely good trades. They basically don't cost a lot to hold. There's the theta decay is very very minimal. There is a little bit. This valley is slightly low. Uh max profit is is 337 bucks. If the market sells down, you'll be happy to have these on because the IV will expand and this will become a profitable trade. So, these are they're cheap to put on. And sometimes I just load up on a on a position like this.

Now, in this case, uh I I did it with two different um like this week, what I did with that trade was I I put on I can't remember 20 or 30 contracts on SPY and then I bought 10 contracts on Q's for the profit 10 above. So, I play two correlated assets that are similar. So, I've got like SPY with a big profit 10 below that's huge. You know, it could make like 50 grand or something, which is nice. If there's a nice move to the downside and it's not, it doesn't need to be a massive move to the downside. We're talking about a 2 or 3% sell-off, then this huge profit tent is there because I know if the sell-off is bigger than that, then the IV expansion is greater and those diagonals help anyways. So, and I have hedges in place. I have black swan hedges in place anyways. So most of the time I'm really praying for a huge down move. That would be ideal. We can hit one of those every couple of years and you can get like this substantially leapfrogs your account. That trade that I just showed you is the way to do that. It's cheap to do. So 150 bucks gives us a big profit 10.

We're going to look back about 30 years and we're going to do a 60/40 portfolio, all right?

So, this is not and we're and we're going to actually define this here. The first thing is I promised I'd tell you exactly what the answer was, uh 80 percentage points better performance if you never rebalance.

Now, obviously I'm not going to say never rebalance, right? Your life changes, your goals change. A lot could happen over 30 years. Should you be taking that risk? Well, according to them, let's see if it's actual risk here.

So, we're going to show a 623% um this is long-term performance, uh almost 30 years, uh return if you never rebalance, 542 if you did quarterly just automatically, and um I'll show you one more thing here. Yeah, there it is.

Here's the funds. So, if you want to do this yourself and and I'm not promoting YCharts, but like I I know that their software can handle it, we use it here. Uh but, you know, this is their stuff and of course their software.

Uh they used Vanguard funds because it gave us the greatest amount of history with the least amount of searching around for other stuff, and it's also not cherry-picking because Vanguard does not often, if ever, go against their prospectus or change their prospectus.

You look at a lot of Fidel Well, some Fidelity funds, you're like, "Oh, it was this way and then 10 years ago you changed the whole model, right?" So, they wanted to find stuff or they wanted to find stuff that was not going to change.

They got VTSMX, you're going to bonds, international short-term bonds, and emerging market stocks. Now, quarterly, we're going to actually reset every 3 months. We're going to measure where this is at, we're going to reset back to this target. Annual, obviously you know what that is.

A unique one that I thought was cool for this study was a 10% drift. Only rebalance if the drift from any one of these whole from the allocation goes 10% higher or lower. In other words, 70/30, right? Oh, 80/20, is that a thing?

And then obviously the the set-it-and-forget-it person there that just never looked back. Okay. How many times do we have trades? This is not such a big deal anymore, but we used to point this out in studies because it'd be like, "Hey, if there's 115 trades, you just cost yourself commissions." It's not really that that most people don't pay commissions anymore. But you got 115 of them.

Uh you have once a year, of course, there'd be 29 of them cuz it didn't include this final year. It's not over yet or that last year. The 10% drift went eight times, which is cool. I want to show that. And then of course never was never.

Okay. I'm going to I'm going to help you guys out here. Oh, can I zoom in a little bit? Uh maybe not. Okay. So, what we're looking for is drift here, right? So, the purple line, right? What we're showing there is the actual quarterly drift. So, how often in one quarter, see this guy right here? How often did we drift well away from our target, that 60/40?

And you can see the quarterly drift is not very much. There was some obvious times in there if you really want to hone in on that. That's 2008. It'd be normal, right? If you look down, yeah, it'd be normal to see some garbage there. Uh that was that. You got uh COVID in there as well.

But we're showing the average drift quarterly 1.3%. Anybody can live with that. Annual 2.3%, which I thought was small, but that's it. And then 10% obviously is going to be 1.2. And if you never ever rebalance your uh full your What do you call it? Your average yearly drift uh got you into um a 12%.

Okay. Performance-wise, we already said if you never rebalance, you perform better 7.14% of the time it I'm sorry, annualized returns. Uh you can work your way down. I don't have to read all the numbers for you. What you can see is that in the last couple years, the spread, you just want to be a really dorky about that green line versus the other. See it spreading out there?

Okay, remember, you never rebalance, right? So, don't think I'm like not going to talk about that. You never rebalance, so what happened? You became that 38 plus percent in tech, right? Maybe a little bit more if the way if you were adding money, right? Oh, it could be even more.

So, and what's been performing really strongly the last couple years? Tech, right? What happens if tech doesn't perform so well going forward and you never rebalance? Yeah, you're going to feel it, right? So, just know that.

Now, what's funny is year by year performance was basically the same, right? Over time, of course, you had slight gains in that never rebalancing. See how it's outperforming, outperforming, outperforming, outperforming. It does outperform in the downside. So, you got to keep that in mind.

But the the sort of comparison year of each allocation there or each each rebalancing focus is really kind of the same. So, I thought that was pretty interesting myself. All right, one thing I want to point out is it gets a little geeky. If you want to go read the study, I believe it's on their website. You can actually look at the same. I just literally took their exact images, so I'm not pretending like I made this.

The max drawdown, cuz someone's going to go, "Yeah, yeah, but if you never rebalance, you become heavier." Which is true. In the overweight areas, you're essentially pushing your winners farther instead of trimming them off and putting the money towards the losers. Yeah, I get it.

However, max drawdown, quarterly rebalance, 37.4%. Never rebalanced, K, like basically the same, right? Which I wouldn't have guessed either. So, you think, "Oh, I never rebalance and I'm taking more risk. Oh, when the market falls, I'm going to feel it more." Yeah, you do, but it's actually not that much.

So, really cool. And then the upside downside ratio, this is a mutual fund um thing. So, if you're ever in that space or you manage a mutual fund, they don't I mean, they do focus on performance, but the upside downside ratio is really important to measure your success as a fund manager.

And 98.9% just means what percentage of the upside were you participating on relative to the percentage on the downside? If the market was up 1%, what did you get? If the market was down 1%, what did you do? The goal would be to be down 0.9% when the market falls 1 and be up the 1% or better on the way up.

So, that's kind of how they get measured there. And I just thought it was pretty cool that even that wasn't that far off. It's a little little bit of a geeky thing to talk about there, but

Um this is just highlighting through the different crashes there. So, as you went through that 2020 crash, okay, uh I'm sorry. It's really small. You you probably can't see it, but of course never rebalancing got hit a little bit harder, 31% versus 28.

And then when we go to 2022 as we had that not crash, but pullback there, of course still going to pullback more. However, on the way back up, bam, back to highs. Who Who got back to highs the quickest? Right? And that That's all that's showing. That's not raw performance. Pretty sweet.

Um here's another or here was the other part that I thought was interesting and then we'll wrap it up from there and go into stocks in the news and answer any questions if you have any questions uh cuz here we go. It's getting hot in here.

Uh if you're adding money, like the rebalancing thing, okay, fine. That's the data. That's the study. But what if you add a thousand dollars or you put money in your paycheck to it? Think about what would happen. If you never rebalanced, the dollars that you put in would be trying to skew back to that target allocation. You would be adding to your losers.

However, what they found is that yeah, as your account grows, the money you're adding from your paycheck is making obviously less and less of a difference. So, just saying I'll never rebalance, but then I'm going to add money from my paycheck or put in, you know, a hundred bucks a month or whatever you do, is really not going to move the needle.

So, uh anyways, I don't need to tell you what it doesn't prove. Uh one mixed

But, I want to show you spy and golft. So, here is spy and this is the relative strength line of spy versus golft. As you can see, that's an almost always moving up. There's a few periods where the red RS ratio line dips below 100, but then it really rapidly recovers. And right now, we are nowhere near crossing below 100. We see a little uptick in the RS momentum line. So, that uptrend is still there. It's going through a little bit of a setback. So, that's why I keep equities, stocks, still at a neutral with a with a positive bias.

And it's I think the market is sending tons of kind of mixed signals right now, because this is absolutely positive, but when you make an analysis of just the price chart, maybe with an RSI or a MACD, there are there are plenty of reasons and cases to be made for an upcoming setback. That's the whole thing. This is relative strength and relative strength for equities right now against VBIX, which is a combination of bonds and stocks, is still moving upward. So, despite the fact that you could come up with a lot of arguments to be very careful with the stock market, which I am too, that's why I'm keeping it as a neutral with a positive outlook, but underlying this relative trend is still in play and until this really changes, we're going to keep it that way.

So the stock self itself stocks itself SPY is still neutral positive.

First up with the S&P 500, guys. You see here with the S&P 500, we've got a beautiful culmination of about six trading days, all developing motion, moving price action down here on the S&P 500. I've highlighted this before, guys. This pivot point, which is the previous all-time high, that's the candle that we broke out to get above in this most recent rally. I've been waiting for price to come back and test that level. After all, how many times in this show do I talk about a breakout and a retrace bounce play. Now, this bounce is what I'm anticipating to occur should and when price come down to $760.40. The thing that will will dampen the bounce, make it smaller is a couple things. First, we already got down here last week on Thursday, put up a small bounce right before the level, and secondly, the backdrop of what I described, the Fed is reducing our dollar buying power by doing these buybacks, maintaining the Treasury yield. So, they're artificially doing this, guys. This is a currency debasement play. How much of this is going to be remain elevated, and how much are investors going to be eager to jump right back into the markets with all of this going on in the backdrop? I know I'm not as eager, so I'm anticipating a smaller bounce should and when price hit there potentially tomorrow at $760.40. Now, if we didn't have this in the backdrop, I would anticipate a potential bounce much higher on the charts, but it is where we're at right now, so we've got to analyze where price can currently go.

That is for that 5-day moving average early next week to kind of come down and flatten out. That happens after Monday. So, Monday afternoon into Tuesday morning is looking like the time that it could confirm this is a low and we make a higher high above that flat to rising 5-day moving average.

Everything indicates here that it should become support. We have prior resistance, which tends to act as support.

We have the rising 20-day moving average and we have the anchor off of the Leopold low. Uh so, taking a look at uh the uh charts of that, you can see uh here with these four time frames.

We've got that 5-day moving average and while we're below it and it's making uh while we're below it and it's making lower highs and lower lows, it's red and that's the anchor from the Leopold low.

Earlier on Twitter today, I had pointed out that this market is doing what we wanted it to do as well. We spoke uh several times about this band of resistance in here having the potential to become support, and that the support from the support and resistance with the with the prior resistance, is not only that's one reason to become interested, but also because we have that 20-day moving average.

That's that red dashed line that is now advancing. It's above the 50, above the 200. These are all bullish things.

The 20-day moving average often acts as support. Well, the anchor from the recent low, the Leo low, is also in this zone. So, you have people who are saying, "Let's stop selling as it gets down to the 20-day moving average. Let's stop taking profits as it pulls into the 20-day moving average. Let's stop adding supply once it gets to the Leo low anchor."

Then you have other people on the sidelines coming to the same the the conclusion that maybe it's time to start nibbling, and that's what I did in here.

Uh I think I covered everything I wanted to, so uh have a good weekend everyone, and uh thanks for tuning in.