401K Monthly Analysis and Market Direction 8/11/13

The market direction remains long. See chart on SPY (S&P500) below. SPY is an ETF Exchange Traded Fund that can be traded like a stock. It includes all the stocks in the S&P500 and is a good proxy for market direction for me.

In my current employer’s 401K, best choices for this month are Fidelity Blue Chip Growth, WFA SPA Midcap VL, Fidelity Large Cap and Royce Opportunity. I stay away from Royce only because of the high redemption fess they charge unless you stay in the stock for a long time. It is volatile but also offers the fastest opportunity for gain (or loss for that matter).

In my previous employer’s 401K, the best selections for this month are Vanguard Explorer Admiral, Fidelity Growth Co. and Artisan Midcap VL Inst.

Included below are some charts on SPY as well as some of these top leading funds mentioned here.

At this stage, the conservative side of me is wandering towards articles about a market crash like in 1987. During that year the market also moved up for a long time before it crashed and dropped very rapidly. How can we protect against such a possibility?
One approach is based on options. Sell call spread options on SPY or the DIA (Dow Jones 30 ETF) and use the proceeds to buy put spreads on the same. This approach nets you less money than buying put options outright; but in case the market stays in a slight upwards slope, the account would not lose value from holding put options that might expire worthless.

Another approach is to buy the Volatility index like VXX and hold it for a while. If the market suddenly flares up due to say terrorist activities, then VXX will spike and help offset some losses. The only negative is that I see the VXX generally falling and finding a bottom is tricky and risky. The recent US embassy closings in many Middle East countries suggest that there is actionable evidence that some terrorist action is being planned against the US. I think I will go ahead and place some offsetting positions on Monday as outlined above.