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SPY, the exchange traded fund for the S&P 500, made a bullish reversal pattern after correcting 4.8% from its recent all-time high. SPY sells for roughly 10% of the value of the S&P500 (charts) index. Based on fundamentals, I've recommended SPY here for years. In my February 2011 Seeking Alpha article ""How to Play Expected Inflation from the TIPS Spread," I wrote I was long, as one way to benefit from expected inflation.

"I also believe it is a good time to own equities including SPY, the exchange traded fund for the S&P 500, for both inflation protection and income."

Pullbacks Are Good Times to Buy

You can see from this chart of SPY for 2013, all pullbacks have been limited to its 50-day moving average. Obviously buying on a pullback to the 200-day moving average would be a better buy, but those who have waited on the sidelines all year for one have missed out on gains of nearly 20% enjoyed by those of us in SPY.


(Click to enlarge)

Bullish Reversal Pattern

The above chart of SPY shows a bullish Morning Star Bullish Reversal pattern. According to Wikipedia:

  1. When found in a downtrend, this pattern can be an indication that a reversal in the price trend is going to take place.


(Click to enlarge)

Notes

  1. I trade SPY around a core position in my newsletter's "Explore Portfolio" and with my personal account. With dividends reinvested, my explore portfolio holds 131.947 shares of SPY with a "break-even" price of $103.29. I also have the index fund version of SPY in both my newsletter's "core" portfolios.
  2. VTI is Vanguard's "Total Stock Market" exchange traded fund. If you want to invest in a single fund, that is my first choice over SPY. I recommend SPY with several others in my core portfolios for more opportunities to rebalance.
  3. VOO is Vanguard's new exchange traded fund that tracks the S&P 500 Index. It is a lower cost alternative to SPY. I own and write about SPY, as I have many years of data for it, but VOO could do slightly better than SPY over time because it has a lower expense ratio.
  4. S&P500 Chart Scan & SPY Chart Scan
Source: Is The Bottom In For The S&P500 And Its ETF SPY?