Some Final Thoughts for 2011

Here’s hoping that everyone is enjoying a safe and pleasant holiday season. Today is my last day in the office for the year; yesterday, my desk was very busy as corporations and investment managers (especially insurers) made currency adjustments for year-end. Today has been quiet, with just the odd flurry or two.

Equities, however, are continuing their yin and yang behavior, with one down day seemingly followed by one to the upside. The extremes on the chart above were set at 1074.77 on October 4 for the low, October 27 saw a high of 1292.66, and we’ve oscillated between them ever since. Granted, that’s a move of 20.3%, but even though the price action has been within an uptrend for the most part, the pullbacks have been numerous enough, and sufficiently severe, to make it very tough to hold a position.

For long-only equity managers, it’s been even more frustrating; after opening the year at 1257.62, we’ve now made it all the way to 1261.20, a gain of, let’s see, almost 0.3%. With a little more effort, it could still be half a percent! Buy and hold, anyone? To be fair, dividend yields can improve the total return; the likely yield on the SPX at the moment is around 2.45%. That would get the total return for the year potentially to 2.75%, still no great shakes, but arguably better, and less risky,  than holding 10-year Treasury notes yielding just under 2%, even though dividend yields can fall as well as rise.

A few possible adjustments come to mind; one is to judiciously use options, as demonstrated here by Doc, to boost returns while reducing risk. Another is to shorten investment horizons, accept that volatility is likely to remain high, and learn the tested techniques taught by Todd in order to become a better and more consistently successful trader.

To my regret, my day job normally precludes me from participating in trading the E-minis. What I’ve done is to apply Todd’s methods to longer-term charts, and use support and resistance to help in timing the sale of calls (within uptrends) and puts (within downtrends) on stocks with decent dividends. Combining technical analysis with the math of options time decay has helped to give me larger and more predictable returns.

In any case, your mileage may vary, but these are just a couple of thoughts as we approach year end that may help to suggest some new or additional directions for your trading. Best wishes for a healthy and prosperous new year; I’ll look forward to chatting in 2012.

About the Author Brian Keith


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