Making Money Alert
It’s All about Trade Location -- 2010 Investment Theme Part 3
01/06/2010
Location, location, location may be the mantra for sound real estate investing, but did you know that the principle of location also can be applied to equity investing? I am speaking here about what I call “trade location,” which simply refers to establishing a good entry point for any equity position you enter into.
What do I mean by good trade location? Well, this refers to buying a stock, mutual fund or exchange-traded fund (ETF) before it’s gone too far above both its short- and long-term moving averages. To illustrate what I mean by a good trade location, let’s take a look at the chart below of the SPDR S&P 500 (SPY).
As you can see, SPY has traded above both its short-term, 50-day moving average (blue line), as well as its long-term, 200-day moving average (red line) for quite a while. This bullish trend is good if you already own this fund, but if you are looking to enter into SPY, your trade location is not very favorable. Favorable trade locations in SPY would have been in late March, early July, and early November, when the fund initially breached its 50-day moving average.
Now, in contrast to SPY, we have the SPDR Gold Shares (GLD). This gold fund was on a rocket ship ride higher from September to December, but then the value of gold pulled back sharply.
That pullback below the 50-day average, and the subsequent rise of GLD above its 50-day mark, is an example of good trade location. This is because you are buying a fund that has yet to become overextended. This strategy also gives you a good chance of buying a fund that’s breaking out toward a sustained run higher. In fact, subscribers to my Successful Investing advisory service just received two new buy recommendations in funds with this outstanding trade location model.
To be certain, just because you have a good trade location doesn’t mean you are going to make money in a position. It also doesn’t mean you can’t make money with an unfavorable trade location. But having a good trade location is a great way to put the odds of winning in your favor.
Finally, good trade location is part of what I am calling the “equity endgame,” which also happens to be Part 3 of my series on Investment Themes for 2010. Playing the equity endgame, i.e., knowing how to get into this market when the current bull stops stampeding, is going to be one of the keys to your success in 2010 -- and it all starts with good trade location.
ETF Talk: Municipal Bonds Offer a Conservative Way to Profit
With the Fed focused on keeping its zero-interest rate policy intact as we enter 2010, conservative bond funds are gaining appeal. Such ETFs offer a way to add balance to equity-leaning portfolios, and to produce income. If inflation becomes a factor later in the year as the economy improves, bond funds may pull back. But for now, they offer a way to diversify your portfolio and to limit your risk, while giving you the opportunity for modest capital appreciation and dividends.
One fund that I like is the SPDR Barclays Capital Municipal Bond Fund ETF (TFI). In fact, I currently am recommending it to subscribers of my High Monthly Income investment newsletter. The fund offers the advantages that I just mentioned, while investing in bonds that are intended to correspond, before fees and expenses, to the price and yield performance of the Barclays Capital Municipal Managed Money Index (LMMITR). The ETF’s strategy provides low portfolio turnover, accurate tracking, and relatively low costs.
I know many investors have heard about the horrendous budget deficit problems in my home state of California, as well as other cash-strapped states around the country. But I took a look at the top ten holdings of TFI and I noticed that the state bonds are in Massachusetts, New Jersey, Washington and Nevada -- not California. In fact, a number of the fund’s top ten holdings are municipal bonds tied to public transportation systems that should have a fairly consistent cash flow stream to support the debt payments. People still need to commute to get to work and to search for jobs, regardless of economic conditions. Discretionary travel could be curtailed during economic slowdowns, but probably not dramatically.
Keep in mind what you are buying with a municipal bond fund. If you want excitement in your life, a municipal bond fund is unlikely to provide it. They do, however, offer income in the form of dividend payments that certainly should beat anything your local bank is paying.
With munis, there is a risk to your capital if interest rates rise and bond prices fall. As a result, you may want to sell any position that you take if it becomes clear that inflation is coming back. Until then, you can beat the low interest rates that banks are paying on their deposits through this investment, while enjoying the potential of capital appreciation. That is just how it has worked out for my High Monthly Income subscribers since I first recommended the position last February.
If you want my advice about which ETFs to buy and to sell, please sign up for my ETF Trader service by clicking here. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to contact me if you have one. To send an ETF question to me, simply click here. You may just see your question answered in a future ETF Talk.
2010 Investment Strategies -- Why Not Give Me a Call?
Join me this Saturday, Jan. 9, 12:00 pm (noon) Pacific, for my first investor teleconference of the year. I will be discussing the investment landscape for 2010, and I’ll be reviewing several of the investment themes for 2010 that we’ve been talking about in the Alert for the past several weeks.
I believe 2010 will present an entirely new list of winners, and losers, in the equity and bond markets. To find out what these are, and how you can take advantage of these trends, all you have to do is give me a call.
This one-hour teleconference will be limited to the first 800 registrants. Our last call exceeded this capacity, and unfortunately, we had to turn prospective listeners away. To ensure that you reserve your spot on this call, I strongly encourage you to register right now.
Here are just some of the important points I’ll cover in Saturday’s call:
- The direction of stocks in the new year.
- The sectors I believes have the most profit potential.
- What you can do to hedge your portfolio against rising interest rates.
- My thoughts on Gold prices in 2010.
- Which commodity ETFs deserve your attention right now.
I urge you to take advantage of this opportunity and reserve your spot today. To signup for this event, simply click here.
NOTE: Fabian Wealth Strategies is an SEC registered investment adviser, and is not affiliated with Eagle Publishing.
The List Is in -- Get Your ETF Report Now
The list is in, and it’s time you got your copy. I am talking here about the final ETF Report of the year -- a report that contains both the fourth-quarter performance, and the full-year performance of every fund in the entire ETF universe.
I recommend that you download this FREE Special Edition of the ETF Report today, as it will tell you how each and every sector of the market did in 2009. This valuable list also can be used as a quick reference guide to all the ETFs currently available.
If you follow any of the advice I give in my investment advisory newsletters, or in the Alert, then you already know how fond I am of ETFs. I recommend these low-cost, transparent and objectively managed investment vehicles to all my readers, so if you still haven’t started using ETFs in your portfolio, this is the year to get on board.
Photographic Wisdom
“Stare, pry, listen, eavesdrop. Die knowing something. You are not here long.”
--Walker Evans
The seminal 20th-century photographer reminds us all that to really learn anything, you have to be an active participant. This is especially true when it comes to your investments. If you want to know how best to take care of your money, you have to become a very active participant.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else. Click here to ask Doug.