Alpha Investment Newsletter Sees 13% Downside in the S&P 500 Index

June 20, 2012 by
Filed under: Americas, Banking, Business, Capital Markets, World 

New York, June 20, 2012 — Note to Investors: The S&P 500 Index has recently bounced back from the correction seen in May 2012 after taking support at 1280.

While the latest FOMC communication from the US Fed does not reveal any QE3 indication in the near future, it is possible that some form of QE/LTRO may happen in Europe along with steps towards tighter fiscal management in the EU. Such an event, having only 20% probability in the near term, can move global equity markets up by 10% within a few weeks.

However, in the absence of any material policy action in the US or EU, the S&P500 can rapidly give up the gains of the recent rally from 1270 to 1360, and possibly make new lows for the year 2012 even before the US Govt can try to revive the economy and the stock markets in this election year. Therefore, investors must remain cautious.

On the downside, if the S&P500 goes below 1300 again, the selling pressure will be much more intense this time, and the the fall may stop only around 1180 level. So the Alpha Investment Newsletter sees 13% downside risk in the S&P 500 Index from current level of 1360, if the index closes below 1300.

Therefore, investors must remain cautious, and keep 50 percent portfolio in cash or bonds or gold, the remaining 50 percent can be deployed in S&P500 ETF (SPY) or a portfolio of diverse stocks or mutual funds. The SPY ETF is an attractive investment instrument for the current market conditions.

On the upside, the S&P500 can move to 1450 on the back of matetial policy action by US or EU. To capture market upside, investors can buy SPY ETF above 136 and and exit below 130 or buy SPY AUG 130 Put options for portfolio protection.

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