Newsletter of Danny Merkel - Issue #126
Market Review:
Despite some recent strength, the average retail trader has faced a challenging, choppy trading environment over the past 2 years.
Small stocks in particular are bogged down in what seems like a never ending trading range.
Trading ranges make Trend-Following systems look dumb, and the above price action in the Russell 2000 is no exception.
The four previous short-term upswings all resulted in disappointment for the bulls, and I don’t see anything special about this 5th upswing today.
And it’s not just small stocks that are stuck. Looking at all of the big stocks in the S&P 500, but weighing them equally, another trading range emerges.
Trading under the symbol RSP, the S&P 500 Equal Weight ETF has gone nowhere in 2 years, including dividends.
Going nowhere for 2 years might be okay in a low inflation, low interest rate environment, but today there is a huge opportunity cost.
To help illustrate this opportunity cost, I’ve included USFR’s performance in the bottom panel.
Investing in the average stock in the S&P 500, taking all the risk of a potential decline and earning nothing in return isn’t good enough, especially when you can lock-in a stress free 5.5% yield today.
Individual Stocks:
On Friday, I had six of my options expire and I will now examine each one individually. Hopefully these practical real-life examples will help illustrate my strategy.