2023 Review

Heather Cullen

Heather Cullen

Author
In The Money

Heather Cullen Blog Xmas tree bulls

The End of 2023!

Nowhere near as dismal as 2022, which was a truly horrible. year Let’s have a look and see how ITM Bull strategy performed for the year.

Why Oliver Cromwell? When he was having his portrait done, and he wanted to be painted ‘warts and all’. So let’s look at ITM, ‘warts & all’.

SPY Performance

We started the year with a SPY golden cross in January, getting into the market at around $400. Our joy was short lived, however, with a retracement in February wiping out all of our gains. There was a failed death cross in March (some of you did get in and then out again quite quickly; you would have sold around $398 giving a loss of 0.5% (1% leveraged). You would have bought in again around $395 so a small advantage there.

We then rode the market up, albeit slowly, until late October when there was a death cross and we got out at around $423, giving us a profit of 7% (14% leveraged) – only to get back in again on the 9th November at around $434. That meant that we were getting in again at a 2.6% higher cost, which was irritating.

Heather Cullen Blog Xmas Bulls

We’ve now at $469.33 which means on the current trade we are up 8% (16% at 100% leverage). So, if we add up (at 100% leverage):

-1% +14% + 16% = 29%

So, we have made 29% for the year. Not exactly earth shattering I admit, but we did beat the market which went up 22%. We need to remember that we are doing a bull market strategy and that the market this year has been emerging from a bear market & has not exactly been a bull market!

SPYG Performance

Like SPY we had a golden cross in February, and so got into the market at around $54.70, only to be sadly disappointed as it proved to be short-lived, and we exited a few days later at $52.73, losing 3.6% (7.2% leveraged) Ouch. Not happy. At the end of March we reentered at $55.73, a higher price. Since then we have stayed in the market as there hasn’t been a death cross in SPY, and so we are sitting on a gain of 15.7% (31.4% leveraged)

-7% + 31% = 24%

So for the year we are up 24%, not great when SPYG itself went up 28%. Not one of my success stories!

So – is ITM worth it?

As I say in my books, there are years when ITM does not do very well – and it is just my luck that we have hit 2 of them shortly after publishing. My timing sucks, I know.

However, I have been automating a lot of my backtesting and I know that in the long run (over 30 years, and even 100 years) it does outperform the market spectacularly.

I am planning on using the backtesting model I have been creating to update both the bull and the bear book in 2024, and hopefully refining the strategy so that it is even more accurate, and being able to add in more parameters, like interest rates and how big we want to ‘white space’ in crosses to be. But first I am going to take a break!

Reading Stock Charts

I have just published a new book called Reading Stock Charts.

It is a short read, just 75 pages, and goes through the basics of technical analysis and the top 10 indicators – just the kind of thing I do when I write about the charts here every week.

Here’s the link: Reading Stock Charts

Finding Suitable SPY Options

I have been having a few queries about finding suitable options for SPY. It is currently trading at $469.33 so we would be looking at an effective price (strike + cost of option) of $474.02 or less to fit in with not paying more than 1% time value.

Looking at the options chain today, for March expiry:

Heather Cullen Blog Options Chain

The spread is around $3.50 so if you are looking at being filled just over the halfway mark then any of these options would work. The $235 strike is 100% leverage , a higher strike is a higher leverage.

If we look at the June options chain we have a harder time. Really, the 230 and 235 strikes are the only ones that work.

Heather Cullen Blog Options Chain 2

To the markets . .

It was quite a pleasant week; a nice change . .

SPY Chart

It was quite a pleasant week; SPY continued its ascent, staying above the resistance level of $458 which is encouraging. After a large green candle on Wednesday the next 2 have been dojis, meaning that the open and close were the same resulting in a very small body. How we read a doji is that the  buyers and sellers are roughly in agreement of the price, neither being able to drive it up or down. So we’ll watch this week. I would not be surprised if it dipped to retest the resistance line as support – we talked about that last week, the tea cup pattern.

Heather Cullen Blog SPY Chart 1

And let’s get a little perspective. Here’s the last 3 years:

Apart from 2022 being a dismal year, what do we notice? That we are approaching the all-time high of $477.71 which we reached on the 3rd January 2022, two painful years ago. Will it prove to be a resistance line? Possibly. We can only watch and see what the market is telling us.

SPYG Chart

SPYG is showing the same pattern as SPY, staying above resistance at $63. Like SPY, a retracement to test this level as support would be entirely normal behavior. Lets check where we are historically:

Heather Cullen Blog SPYG

Unlike SPY we are nowhere near the all time high of $73.48 on the 27th December 2021. Is this following QQQ ? Let’s have a look.

QQQ Chart

Heather Cullen Blog QQQ Chart

The daily chart is following the same pattern as both SPY and SPYG. Let’s look a little further out.

Heather Cullen Blog QQQ chart 2

Notice anything interesting? Yes, QQQ has taken out its previous high from 2021, and is trading above it. Not a lot, and only for 3 days but that is a good sign. The previous high was $403.99 and Friday’s close was $405.34. Yay!!

VIX Chart

The VIX continues to decline, and is definitely classed as a low-volatility market. Can it go lower? Well, it has been lower before; in October 2018 it was under 10!

ITMeter

Heather Cullen Blog ITMeter

The week ahead . .

At this stage the futures are looking slightly positive, but we have still 10 hours to go before market open.

Heather Cullen Blog futures

I expect that trading will be very light this week, and next due to the holidays coming up.

And signing off . .

This is the last blog post for this year. I will be back again on the 8th of January. We are in a good position, it is unlikely (but not impossible) that we will need to do anything on the next 2 weeks. However, I will be keeping an eye on the markets and will put up a special blog post if anything goes wrong and we need to act.

So, thank you for your company this year – trading, although fascinating, can be a lonely pursuit, so it is always nice to find like-minded people who are open to looking at the markets in a different way. Have a wonderful Christmas, and lets hope that 2024 will be a fabulously exciting and rewarding year for us all!

Heather Cullen Blog Xmas

Heather

P.S. AI generated images are improving, don’t you think?

Comments & Questions

10 thoughts on “2023 Review”

  1. Dear Heather,

    Thank you for your weekly blog. In the last couple of years, your weekly blogs has kept me going energetically and enthusiasticly especially during the covid pandemic. Cheers to ITM method and cheers to America and cheers to the SPY etf. Happy Holidays and Happy New Year.

    Sincerely,
    George Halongton in Los Angeles

  2. Heather,
    “Suitable” options. I want to understand what you’re getting at. Examples from your newsletter – I don’t understand words like “we have a harder time,” or “the only ones that work,” I have read your books.

    I select options based on expiration, strike price and current price and they perform as I would expect. But I may be missing an “edge” to my trades!

    So I wish I knew what you were driving at, on the sole basis you’ve invested so much thought into your work! Thank you for all you do!
    James

    1. HI James,
      sorry, didn’t mean to confuse.
      I simply meant that the options have less than 1% time value – that the effective price (strike + option cost) is less than 1% above where SPY is currently trading. So SPY closed today at $471.97, and 1% above it is $476.69, so if we wanted to buy the $230 strike options it would have to cost less than $246.69. Of course you can use highe strikes; you get more leverage but you also have higher time value which decays over time.
      When I say ‘we have a harder time’ I meant that, because of interest rates, options are relatively more expensive than they were. It used to be easy to get options with an expiry date a year away at 60% and 65% of current price at less than 1% above. But not any more, we have to either sacrifice time (by getting a closer expiry) or lesser leverage (50% rather than, say, 60%)
      When I said ‘the only ones that work’ I meant that they fitted into the ITM guideline of an effective price (strike + option cost) less than 1% above current price.
      So, no, you are not missing anything, I should have explained more clearly.
      Hope this helps – if not please get back to me
      Merry Xmas!
      h

  3. Thank you for your hard work and always keeping us up to date on the market. Merry Christmas to you and your family, and a very Happy New Year too.

  4. Hi Heather,

    Thank you for everything. Have a safe and Merry Christmas and a Happy New Year.

    All the best to you and your family,

    Ronny

  5. I have been trying to find a DITM call for DEC 20 but I can’t find anything that is at the 50-70% of the current price with an effective price of over 2% . Is paying more for these DITM calls still viable?

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