SPY Getting Closer to Major Buying Zone

Jul.18.11 | About: SPDR S&P (SPY)

As I've been suggesting in my recent articles on Seeking Alpha, I don't believe US equities as a whole are going to be a particularly great source of capital returns; I believe we are in a commodities bull market cycle, one that has been in place since around the start of the new millennium. From this perspective, indices are not particularly appealing; certain sector ETFs, such as those related to commodities, and stocks with healthy balance sheets and a willingness to issue dividends and thus generate value even in a secular bear market, constitute preferred investment opportunities.

With that said, I believe indices like the S&P 500 will continue to rise so long as the US Federal Reserve engages in its standard policies designed to stimulate the economy. Such policies have the impact of increasing the money supply, and this new money will quickly find its way from banks into the stock market. From this perspective, the S&P could be thought of as a possible store of wealth and protection against price inflation and a rising cost of living -- certainly more so than US Treasury bonds, many of which have a negative yield in terms of real interest rates.

In addition to be a potential inflation hedge of sorts, I believe SPY will offer up some great opportunities for short-term traders. In fact, I believe we may be nearing one such opportunity now. In the chart below for SPY, notice the light blue range; that is an area I believe buyers will step in to push prices higher. The recent high near 136.50 constitutes a potential target exit price. Traders comfortable with managing risk in this setup can generate great returns, doubly so as they gain experience and expertise with managing leverage in such trades.

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But for those looking for a buy and hold opportunity that offers opportunity for growth in real wealth, my advice is simple: Look elsewhere.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.