My Current View Of The S&P 500 Index: February 2024 Edition (NYSEARCA:SPY)

In this month’s article, I outline why I will maintain my position of having 100% of my pension plan assets invested in the SPDR S&P 500 ETF (NYSEARCA:SPY). I will not have a cash position. First, let me review my pension plan performance in January. The market, as measured by the S&P 500 index, gained 1.59% for the month as can be seen in Chart 1 below. As for my pension plan assets, I matched the index as my investment allocation gained 1.59%. My investment objective of preserving my capital was met as I did make money. I did not meet my second investment objective which is beating the S&P 500 index. Table 1 below shows the returns and my allocations for the month of January and Table 2 below shows my returns for the past 12 months.

I have made changes to Table 2 below after I received a comment from a reader. Table 2 shows new columns to better (more accurately) reflect my investment results. The third column, $100K Hypo, is what my returns would be if I started my account with $100,000 in my first article of this series and followed the allocation recommendations from my articles. The fifth column, $100K SPY, shows the returns of just investing $100,000 and keeping it all allocated to SPY. The percentage returns in the last row show that my strategy returned 13.34% for the last 12 months and simply investing in SPY would have returned an even 20.60% for the last 12 months. Therefore, I have underperformed SPY for the last 12 months by almost 7.26%. As I’ve stated before, beating the market is harder than it seems.

Table 1 – Investment Returns for January

Table 2 – Investment Returns Last 12 Months

To review the purpose of this series of articles, my retirement account only allows me to buy the following four ETFs: iShares Core U.S. Aggregate Bond ETF (AGG), SPDR S&P 500 ETF (SPY), Vanguard Extended Market Index Fund (VXF), and iShares MSCI EAFE ETF (EFA). I can also have my money in cash. The question is how to decide where and when to allocate money to these various ETFs.

I use my moving average crossover system combined with relative strength charts to determine how to allocate my pension plan assets. My moving average crossover system uses the 6 month and the 10- month exponential moving averages to identify which of the four ETFs are in position to be bought. If the 6-month moving average is above the 10-month moving average, then the ETF is a buy. I call this setup being in bullish alignment. When the 6-month moving average is below the 10-month moving average the setup is referred to as a bearish alignment. When a bearish alignment happens, I don’t want to hold that asset. See Chart 1 below for a long-term look at the S&P 500 index using my moving average crossover system.

Chart 1 – Monthly SP 500 Index with 6/10 Moving Averages

You can see that the moving average crossover system provided some excellent long term buy and sell signals that would have allowed investors to capture long duration moves in the index; while avoiding costly drawdowns. Avoiding these costly drawdowns allows me to meet the objective of capital reservation.

I employ this strategy because I do not want to experience a large drawdown with my pension assets. During the 2008 – 2009 market crash many people didn’t even look at their retirement statements because they were afraid of what they would find. I submit that if those people would have used a market strategy like what I outline in this series of articles, they would have been able to avoid much of the decline during the bear market and consequently would have had less emotional stress during that time.

The following charts show the status of the ETFs that I am allowed to buy in my retirement account.

Chart 2 – Monthly SPY with 6/10 Moving Averages

Chart 2 shows that SPY gained 1.59% in January and closed the month at new highs. SPY’s volume was about the same as last month. SPY remains in bullish alignment and the area between the two moving averages is widening, which is bullish. I like what I see in SPY, and I will maintain my 100% allocation to SPY in February. While I can’t predict the future price of SPY, it is at all-time highs and the trend is bullish. So, the odds favor positive outcomes in the months ahead.

Chart 3 – Monthly VXF with 6/10 Moving Averages

Chart 3 shows that VXF gave back 2.46% in January. This is after two months of outstanding gains. VXF remains in bullish alignment and held above the recent high made back in July. It looks like VXF is on its way to challenging its previous high made in November 2021.

Chart 4 – Monthly VXF:SPY Relative Strength

The VXF:SPY ratio lost 3.99% in January as shown in Chart 4. VXF is back to being in bearish alignment as price is below both moving averages. Last month, I gave thought to allocating money to VXF last month but decided against it because this chart wasn’t yet in bullish alignment. Good thing I stayed within the rules of my system by waiting for Chart 4 to get into bullish alignment.

Chart 5 – Monthly EFA with 6/10 Moving Averages

Chart 5 shows EFA lost 0.45% in January. EFA is in bullish alignment and is on the cusp of being at new highs. Volume was just a bit more than last month.

Chart 6 – Monthly EFA:SPY Relative Strength

Chart 6 shows that the EFA:SPY ratio lost 2.01% in January. The ratio trades below both moving averages and is not in a position of strength. The ratio is in bearish alignment. On the positive side of things, the ratio may be putting in a higher low. Still, there is no reason to be in EFA versus SPY.

Chart 7 – Monthly EFA:VXF Relative Strength

Chart 7 shows that EFA outperformed VXF in January by 2.06%. The ratio is in bearish alignment and price looks to be back testing the neckline of the bearish head and shoulders pattern shown by the dashed green line. The left shoulder formed in the 4^th quarter of 2022. The head peaked in April 2023 and the right shoulder peaked in October. The neckline of the pattern is shown by the dashed green line. The distance between the neckline and the peak of the head is the expected distance of the decline in the ratio once it breaks its neckline as it did in December. The expected decline target area is where the dashed orange line is on the chart. Somewhere in 0.41 to 0.42 level. This back test price action is common. This is not a prediction on my part, just something I am keeping an eye on. With all that said there is no reason to be invested in EFA over VXF.

Chart 8 – Monthly AGG with 6/10 Moving Averages

Chart 8 shows that AGG remained about unchanged. It lost 0.15% in January after having two consecutive bullish months. AGG remains in bullish alignment. Another bullish sign is that AGG exceeded the April high and therefore has made a change in trend. AGG now has a higher high after a higher low. The higher low was made in October as its low was higher than the previous low made in October 2022. After a long decline that started in August 2020, AGG is now trending higher on the monthly chart.

Chart 9 – Monthly AGG:SPY Relative Strength

Despite all the glowing comments about AGG in the previous section, the AGG:SPY ratio in Chart 9 lost 1.72% as AGG underperformed SPY in January. The ratio is in bearish alignment and is trading below the area of consolidation as shown by the green box. Investors still prefer equities to bonds.

In summary, only SPY had a good month in January. It rose 1.59% while the other ETFs all lost money in January. For January, I matched the return of the SP 500 index which isn’t the worst outcome. Looking ahead, the market will be impacted by interest rates, quarterly earnings, and economic reports. Because of this and my inability to predict those things, I simply follow the trend. That is why for February, I still think that SPY is the best place to put my money for the following reasons. SPY is in bullish alignment meaning the trend is strong. SPY is at all-time highs which I see as bullish. Also, SPY is still outperforming the other ETFs as evidenced by Charts, 4, 6, and 9. Therefore, I will maintain a 100% allocation to SPY in February.