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Hitting A Home Run With Our SPY Put Spread

We have another home run here, a 13.02% profit in only 6 trading days. Friday the 13th seems as good a day as any to take a profit. Also, we are realizing 87.17%of the maximum potential profit in the S&P 500 SPDR’s (NYSEARCA: SPY ) May , 2016 $210-$213 in-the-money vertical bear put spread. In the highly unlikely event that we have a major rally in stocks next week, we now have new dry powder to play with, having cut our net short position in the from 40% to 20%. If you have the ProShares Short S&P 500 Short Fund ETF (NYSEARCA: SH ) (click here for the prospectus here ), or the ProShares Ultra Short S&P 500 Short Fund 2X ETF (NYSEARCA: SDS ) (click here for the prospectus here ), keep them. We are going lower. This trade takes our performance up to a blockbuster 10.37% so far in May, and 11.58% since the beginning of 2016. These are numbers almost anyone would kill for. I never bought this week’s rally in the Dow Average for two seconds. No volume, no news, and no cross asset class confirmations meant it was not to be believed. It was just another opportunity for the high frequency traders to pick the pockets of hedge funds by squeezing them out of their shorts, which they have been doing on a weekly basis all year. That conviction allowed me to hang on to my aggressive 40% net short position, until now. This takes my Trade Alert performance to a new all time high of over 203.26%. Better yet, WE ARE POISED TO MAKE AS MUCH AS A 14% PROFIT BY THE END OF NEXT WEEK WITH OUR REMAINING POSITIONS! To remind you of why we are short the S&P 500 in a major way, let me refresh your memories. It’s all about the strong dollar. A robust buck diminishes the foreign earnings of the big American multinationals, major components of the S&P 500. I think it is much more likely that stocks grind down in coming weeks to first retest the unchanged on 2016 level at $2,043, and then the 200-day moving average at $2,012. Share prices are anything but inspirational here. Price earnings multiples are at all time highs at 19X. The calendar is hugely negative. Soggy and heavily financially engineered Q1 earnings reports came and went. Huge hedge fund shorts have been covered with large losses, and no one is in a rush to jump back into the short side. Oh, and the is bumping up against granite like two year resistance at $2014 that will take months to break through in the best case. Did I mention that US equity mutual funds have been net sellers of stock since 2014? This position is also a hedge against what I call “The Dreaded Flat Line of Death” Scenario. This is where the market doesn’t move at all over a prolonged period of time and no one makes any money at all, except us. If I am right on all of this May will come in as the most profitable month for the Mad Hedge Fund Trader Trade Alert Service in more than a year. For new subscribers, your timing is perfect! To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of optionshouse . The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous. Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out. Here are the specific trades you need to execute this position: Sell 37 May, 2016 $213 puts at………….….……$8.40 Buy to cover short 37 May, 2016 $210 puts at…..$5.45 Net Cost:…………………………………………………..$2.95 Potential Profit: $2.95 – $2.61 = $0.34 (37 X 100 X $0.34) = $1,258 or 13.02% profit in 6 trading days. Time for Some Downside Protection Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

When You Exit The Stock Market, Don’t Let The Door Hit You On Your Way Out

You cannot make this stuff up. The median stock in the S&P 500 has never been more overvalued on price-to-earnings growth (PEG) and price-to-sales (P/S). On a forward price-to-earnings (P/E) basis – where profitability expectations already reflect pie-in-the-sky speculation – the median company’s shares trade in the 96th percentile. That’s pretty darn pricey! Credit Goldman Sachs for the assessment. For that matter, give the financial conglomerate kudos for acknowledging the strong possibility that one might be wise to “sell in May” after all. Hedge fund legend Stanley Druckenmiller , who spoke at an investment conference in New York last week, forcibly advised exiting stocks as well. One of his reasons? The stock market in 1982 versus the stock market in 2016. He said, It is hard to avoid the comparison with 1982 when the market sold for 7-times depressed earnings with dozens of rate cuts and productivity rising going forward vs. 18-times inflated earnings, productivity declining and no further ammo on interest rates. Granted, overpriced stocks cannot and will not tell anyone the near-term direction of the market. What’s more, ultra-low borrowing costs a la zero percent interest rate policy largely drove risk assets like stocks to unbelievable extremes. On the other hand, front-loading investment returns over the past seven years has pilfered the potential gains one might have anticipated over the next seven years. The Federal Reserve’s own Richard Fisher confirmed the central bank’s front-loading endeavors back in January. Consider an analysis by Steve Sjuggerud. He analyzed data going back to 1870 with respect to what happened to annualized returns after seven incredible years like the current bull market. The anticipated gains over the next one, three, five and seven years were not particularly promising. In essence, the past’s remarkable returns confiscated the prospects for the future. In contrast, the worst decile rank for seven-year periods served up enhanced annualized gains going forward. Are these results surprising? Not really. It tells investors what they should already know; that is, the rewards for holding stocks at higher elevations are dismal, whereas the rewards for acquiring stocks at lower elevations are admirable. Virtually everyone who has ever looked at the relationship between high valuations and future returns understands that higher prices today imply lower future outcomes (and vice versa). Quantitative easing (QE), zero percent rate policy (ZIRP), negative rate policy (NIRP) did not alter the long-standing relationship; rather, central bank shenanigans pulled the gains from the future into the present, while decimating the hold-n-hope possibilities for the future. If I readily acknowledge that valuations alone do not predict the near-term and that stocks could “grind higher,” why have I been so adamant about maintaining a lower risk equity profile over the last 12 months? Weakness in the global economy, deterioration in market internals (including credit spreads) and the Fed’s directional shift since QE ended (December 18, 2014) have combined to create a toxic brew for “risk on” asset performance. Is it true that riskier stock assets have bounced back from two corrective beatings? In August-September of 2015 and again in January-February of 2016? Yes. Still, the percentages do not lie. Less risky asset types are clearly outperforming riskier ones… and that does not happen in powerful bull market uptrends. We should also be cognizant of the reason(s) for risky asset recovery. Is it because there has been widespread buyer demand from “mom-n-pop” retail investors, institutional advisers, pensions, mutual fund managers and/or hedge funds? On the contrary. Each of these groups have been “net sellers” for 16 consecutive weeks. Corporations are the only net buyers of their own shares and they remain the biggest source of stock demand. However, that dynamic may be changing. Corporations have started to slash spending due to revenue and profit weakness. Not only did the number of firms that cut dividends reach a seven-year high, but according to Bloomberg, corporate buybacks are set to fall below $600 billion for the first time in three years. Get a gander at the table below that shows the possibility of a slowdown based on announced buybacks over the first four months. Click to enlarge In earlier commentary, prior to the available buyback data from Bloomberg, I suggested that corporations would be incapable of perpetually spending 100% of free cash flow after dividends to artificially support share prices. The practice of ignoring capital expenditures has almost certainly hindered business growth for years to come. Take a look at the chart on corporate borrowing below. Corporations spent the majority of borrowed money on buying or maintaining land, buildings, and equipment in the 90s. Today? Most of the debt was spent on non-productive financial engineering. In other words, not only did corporations double their total debt levels since the Great Recession ended, but they barely spent any of that debt on anything other than stock buybacks or acquisitions. Click to enlarge Let’s review. Valuations sit at historic extremes. “Risk-off” has outperformed “risk-on” for an entire year. Buybacks have been remarkably influential in propping up the benchmarks, but may be less likely to do so for the remainder of 2016. Factor in global economic weakness that is showing little signs of turnaround as well as election uncertainty, and it is easy to see why preservation may be more critical than appreciation pursuits. I do not advocate getting out of stock assets completely. A tactical asset allocation shift that lowers one’s risk exposure is typically more beneficial than an “all-in” or “all-out” approach. That said, if you have not reduced your exposure yet, you might want to do so now. Otherwise, there’s a good chance the stock market door will hit you on the backside when you eventually scamper for cover. Click here for Gary’s latest podcast. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

3 Strong Buy All-Cap Value Mutual Funds

Value mutual funds provide excellent choices for investors looking for bargains, i.e., stocks at a discount. Value mutual funds are those that invest in stocks trading at discounts to book value, and have low price-to-earnings ratio and high dividend yields. Value investing is always a popular strategy, and for a good reason. After all, who doesn’t want to find stocks that have low P/Es, solid outlooks and decent dividends? However, not all value funds solely comprise companies that primarily use their earnings to pay dividends. Investors interested in choosing value funds for yield should be sure to check the mutual fund yield. The mutual fund yield is the dividend payment divided by the value of the mutual fund’s shares. Below we share with you three top-rated all-cap value mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of all-cap value funds, their Zacks Rank and past performance. DFA Tax Managed U.S. Marketwide Value II (MUTF: DFMVX ) seeks long-term growth of capital. DFMVX invests 100% of its assets in its Master Fund, The Tax-Managed U.S. Marketwide Value Series. The Master fund is expected to invest the lion’s share of its assets in companies located in the U.S. DFA Tax-Managed US Marketwide Value II has a three-year annualized return of almost 9.1%. DFMVX has an expense ratio of 0.22% as compared to the category average of 1.10%. Pioneer Core Equity Fund A (MUTF: PIOTX ) invests the majority of its assets in equity securities of U.S. companies. PIOTX may invest a maximum of 10% of its assets in securities of non-U.S. issuers, which include up to 5% of its assets in securities of emerging economies. The fund may also invest in initial public offerings of equity securities. Pioneer Value A has a three-year annualized return of almost 6.3%. Craig Sterling is one of the fund managers of PIOTX since last year. Homestead Funds Value (MUTF: HOVLX ) seeks capital appreciation over the long run. HOVLX primarily focuses on acquiring common stocks of undervalued companies with market capitalization higher than or equal to $2 billion. The fund considers factors including earnings valuations and debt ratios to identify undervalued companies. Homestead Value has a three-year annualized return of almost 9.9%. As of December 2015, HOVLX held 48 issues, with 5.47% of its assets invested in Bristol-Myers Squibb Company (NYSE: BMY ). Original Post