Bad Santa Rally.
Well, Santa was not kind to us traders this year. In fact, he was quite horrid! We finished the Blog year on a high note, only to be cut down mercilessly in Christmas week. Two days after the blog was published there was the second biggest drop of the year! Not a nice present at all. But more of that later.
2025 Predictions
At the end of last year, we looked at the S&P 500 predictions for the end of 2024 from the major Wall St firms. At the time, the S&P was just above 600, and it has since dropped to 592 (-2.5%), but even so, the predictions were way out, the average being 480.
I thought it would be interesting to look at their predictions for this year. Most of them are predicting a good year but you have to wonder how much of the prediction is based on the current year being a good year. Has this influenced their predictions? I tried to get ChatGPT to collect this information, but it was beyond the poor thing. It complained:
Compiling a comprehensive list of average S&P 500 year-end predictions from top Wall Street firms over the past 20 years is challenging.
I coaxed it, but it just kept repeating the same nonsense over and over till I got frustrated and gave up. It must have had a new year’s hangover. However, I did get this info:
A study covering 2018 through 2024 found that consensus estimates were never within 10% of the actual S&P 500 returns, with discrepancies ranging from underestimations by 26% to overestimations by 21%.
I nagged a bit more and got:
Over a broader 20-year period, analysts overestimated the S&P 500’s year-end price 65% of the time, with average price targets being 7% higher than the index’s actual year-end price.
End 2025 Targets
Who was the most accurate last year? Openheimer (5,200).
Who was the worst last year? IPMorgan (4,200)
Should we take any notice of them? IMNSHO* – NO!
*In My Not So Humble Opinion
To the markets . . .
Well, there’s a bit of catching up to do! The big news of course was the major dip on the 18th December, which was not the Christmas present we were hoping for! Strangely, the press has been very quiet about the ‘Santa Rally’! Let’s see what happened:
SPY Charts
Wednesday 18th December was the nasty big red candle. It dropped right through what we were hoping would be support at 600, and went all the way down to the next support level at 586. We thought / hoped we had left that way back in November, but no. all the way down. The next day it retested support at 586, closing right on it. The next day, it opened below this level, but then changed its mind and decided to go up instead.
The next 3 days made it look like it was going to be a classic bear trap, but then it dropped again right down to support, even trading below it intraday on the 2nd Jan.
Not a very happy new year either. Last Friday was a good day, which was cheering, but it is only one day. We have to watch and see whether support holds. If it doesn’t, then it may retrace all the way to 565, by which stage we would be perilously close to a death cross.
The next few days are going to be interesting. I really hope that support holds, and we are not seeing the end of our bull market – but the market does what the market does. We just ride it to the best of our ability.
On the long term chart, we can see that SPY is right on the bottom of its trading channel. Let’s hope the channel holds.
SPYG Charts
SPYG is following the same pattern as SPY, so the comments on that are valid here – with, of course, the support (we hope) level being 88. As for SPY, support is currently holding, but if SPYG drops through it the next level is 85. Not the end of the world, but we’d prefer it stays up above 88. The 200 SMA is creeping up, and is now over 80, but we are still about 10% above a possible death cross.
In the long term chart, we see that SPYG is still in its trading channel.
QQQ Charts
QQQ is following the same pattern as SPY, and is testing support at 510. It has dropped through the previous high set in early November, which was not a good sign, so we will have to watch to see if support at 510 holds. If it doesn’t then it is likely to drop below 500.
In the longer term chart, we see that QQQ is still crawling along the bottom of its trading channel.
VIX Chart (Volatility)
We can see that the VIX had a spike but has settled back below 20.
NVIDIA Charts
Out of curiosity, I thought that I would check in on NVDA to see how it was faring. Here is the long term chart:
On the daily chart we can see that it didn’t take much of a beating on 18th December, and has been bouncing since then. Not at a new high, however.
ITMeter
The week ahead . . .
It’s a busy week: U.S jobs data on Friday, the Fed’s minutes on Wednesday, several Fed officials are giving speeches (don’t they ever shut up?) and inflation data from Europe & China. There’s a holiday on Thursday (Jimmy Carter) so it is a shortened week.
The Futures
Right now, they are down marginally, but it is still 10 hours to market open.
Trade the tide . . .
I see from the news that there’s some pretty bad weather in the U.S. right now – so I thought I would remind you what summer looks like. Here’s the beach this morning.
Yes, I’m lucky!
Fingers crossed for a good week!
Heather
Q & A
I am way behind on answering questions – I will try to answer them all in the next couple of days. If you have a question for me please post it here. If you want to chat to other traders then go to ITMChat.
31 Responses
Dear Heather,
Thank you for your reply. I appreciate it very much. In your books, you discuss about Black Swan Events such as September 11, 2001 and the Los Angeles Fire of January 2025. As traders and investors, we need to be careful and cautious and please make sure we always have plenty of cash to ride out these type of unfortunate events. For example, Warren Buffett and Berkshire Hathaway currently have more than $300 billions in cash and cash equivalents.
Sincerely,
George Henry Halongton
Dear Heather and ITM Readers,
Thank you for your weekly blogs as always. Los Angeles has several fires going on right now. Please stay safe everyone.
Sincerely,
George Henry
Hey George – yes the news about the fires in LA has reached us in Australia – it sounds dreadful. I also read that the fire hydrants had run out of water so the firefighters were unable to do anything.
Sounds awful.
I hope all my readers – and everyone else – is OK.
h
Hi Heather I really enjoyed reading your ITM bull strategy book. I am about to take the plunge and buy my first option for SPYG. The only options I can find on Robinhood with a reasonable time value is March 21 (73 days) to expiry. It has a time value of 2.72% and strike % of 45. Is this too low? Seems like this would be one to roll up out of right? The next higher option at 45 strike has a % strike of 50 and time value % at 3.64. Basically I’m trying to find the lowest time value % but SPYG doesn’t have as many available options as SPY. Could it also be Robinhood? Thank you Annalia
Hi Annalia
Just had a look at the SPYG chain – the farthest out you can buy is Jun 20 2025 (SPYG does not have as much choice as SPY) and I would recommend getting this expiry date as the March options are a bit too close.
The lowest strike I can see is $50 which is a 56% strike, so lets look at that. The bid / ask is 38.70 / 40.70 so the mid point is $39.70. This means that you would have an effective price (the exercise price) of $50 + $39.70 which is $89.70.
SPYG is currently trading at $88.76 so you have $0.94 time value which seems like a reasonable choice.
Ree Robinhood not having all the options – I think that6 they would because it is not the broker who sets the options chains, but the options exchanges so will be the same no matter what broker you are using.
Hope this helps – pls get back to me if I haven’t answered your query properly.
h
2025-0107 On down market days I sell Puts. Today I placed the following trade: SELL -1 SPYG 100 20 JUN 25 80 PUT @1.70 LMT MARK GTC. If trade is filled in a portfolio margin account it has a possible return on capital of 30%.
Hi Bajapete (?)
I’m afraid I can’t encourage you here – I think selling naked puts and trading on margin are really dangerous.
I really hope it works out for you- but when placing a trade I always thing ‘what if I am wrong? Can I live with the outcome?’ That has stopped me being ‘gung-ho’ on a number of occasions.
h
Something I think about periodically is how influential it is what your first experience is with something. By that I mean, if you started investing during an up market, your first experience will be positive and you will continue to learn and invest. But people that start in a negative market will get discouraged and most likely not continue. I have seen a study about problem gamblers, they had early success and got a dopamine hit from that success and get conditioned to look for that success to recur.
I worry about the young men who got those stimulus checks and Covid and put it to work in the market and just keep trading wildly. The ones who were successful with GameStop, for example are conditioned to that success. But I doubt the staying power of that method. Kate
Hi Kate,
sorry I hadnt replied to this so have moved it to here.
You are right about the first experience influencing your outlook, and many renowned traders have pointed this out. Usually the other way, that early wins are a problem – it is self-correcting if traders lose all their money right away, because that stops them trading.
However, the danger is that they are initially successful – which leads them to be over confident and not manage risk properly, leading to much bigger losses when the market goes against them, as it invariably will.
But the covid checks and the boredom of lockdowns definitely encouraged ‘temporary traders’.
h
Someone in the U.S with more money than I have might be interested in this ITM variant. SPX trades an option that you can’t be assigned and that you get U.S. partial long term tax treatment (so about half your roll money will be taxed as U.S. long term profits which is good for now…and Trump has promised he will keep that tax rate (if he fails you’ll not do worse than SPY tax rate). But you need probably 1/2 million dollars or so to trade it as per your ITM strategies. Bob
H
Hi Bob – that sounds complicated! As I mentioned before, I am really not good at tax and its implications, plus I pay tax in Australia on my US earnings under the Tax Treaty.
However, others who live in the US may be very interested in this – why don’t you set up a thread on ITM Chat?
H
Averages depend on the period. If you choose a different period the line will cross elsewhere so this becomes a rather random criterion for going out of the market.
HI there
‘averages depend on the period’ – yes, but a 10-day moving average (taken on a specific day) is always the same – it doesn’t change. You are taking the average close from 10 particular days, and this can never vary. It is the same for the 200 day moving average.
ITM uses the 10/200 day SMAs which will be exactly the same no matter who is calculating them, so it is not random, but exact.
ITM uses the close of the day figure, and so the SMA will not vary if you are basing it on this.
I am not sure if I have understood you correctly, please get back to me if this isn’t clear.
h
your strategy, it has some good sides, but as others have obviously pointed – when it comes to doubling the losses it is not a very good thing. You have found a way around this, but the problem is many people have day jobs and they cannot keep watch over it. Down movements can happen in a few hours so one needs to check at least a few times a day – this is the drawback of the strategy. Inna
Hi Inna
Taking your comment in 2 parts – first, doubling the losses – yes, ITM does but up to a point; the 10/200 death cross gets us out when there is not longer any reason for a bull trade. Which means that we don’t have double the loss as we are out of the market, on the sidelines.
Re having to check a few times a day – no, you really don’t have to. I live in Australia, the market opens here at 10:30PM, and closes at 4:30AM – and I can assure you that I am not up most nights! I always check the market when I wake up, download the data and check the charts and see if anything needs to be done the following night.
I probably stay up for market open once every week or two, and am usually finished what I need to do within an hour and then logout. Apart from that, ITM is very “hand’s off”.
So, really, checking several times a day is really not necessary.
Hope this helps
h
Where I live we cannot carry forward losses, so a loss year of let’s say 30% implies making 59.1%(!) next year just to break even after taxes. Avoiding realizing loss years is of utmost importance due to this tax situation. A loss year is an extremely terrible long-term issue. We have no tax-free accounts here whatsoever. I’d be interested in your thoughts on that. I like your refreshingly pragmatic style. All the best! PS: I subscribed using that form somewhere on your site. I’d like to keep track of your “ins and outs” for a while at least. This tax business is really limiting my options though.
Hi – I really can’t help you with tax – it bores me silly, and I’m not good at it!
I live and pay tax in Australia – there is a Tax Treaty, which a reciprocal agreement between countries so that there is no double taxation. Some countries that have it are UK, Canada, Australia, Germany, France, Japan, China, India. Some that don’t have it are Hong Kong and Singapore.
Australia allows you to carry forward losses, so I haven’t encountered this problem myself.
Sorry I can’t be more helpful.
H
Your backtest PDF seems to be a giant excel export and I can’t really study that. (1000 pages that would need to be printed and overlapped) Would you kindly send me the original file?
Sam
Hi Sam
I don’t give out the original file anymore – I did a few years back and some rather sad and dismal people took great delight in going in and changing a few bits of data and then claiming it didn’t work. I spent quite a few days poring over these massive spreadsheets to find out what they had changed.
I decided that was a waste of my time, and so made the decision not to give out anything that can be altered.
Having said that – the full instructions on how to recreate it are here: https://heathercullen.com/backtesting/ – click on the ‘Download ITM Backtesting Documentation’. You can set up your own backtesting by following the instructions.
The pdfs of the excel files are there just to show it was done and also illustrate how big it is.
Hope this helps.
h
Okay, I’m invested in SPYG so I suppose I should follow the SPYG bear rules which could theoretically hit at a different time than the SPY rules.
Have you backtested following SPY signals trading SPYG? Or vice-versa?
Any comments welcome.
Hi Bob
Yes, SPYG has been backtested for the ITM bull trades as far back as it goes, and it works well. The getting-out signal for an SPYG trade is the same as for SPY – the SPYG 10/200 death cross.
Re ITM bear SPYG trades – no, this has not been tested, and I would be very cautious about doing bear trades on SPYG. It has greater spreads and would move very quickly during a bear market, so getting out of a false signal would prove costly.
I recommend just getting out and waiting on the sidelines.
Hope this helps.
H
It does help.
Thanks!
Heather,
Your not lucky! You have earned the position you’re in today.I for one ,appreciate your sharing with us.
Enjoy that beach and don’t burn …
Best,
Andrew
Thank you, Andrew!
Yes, I have worked – but there’s always luck involved – I am happy & heatlhy & live in a lovely place – so lucky in that way I guess.
Re the beach – I’ll be careful – always off the beach by 9:30 when the sun starts to get strong.
It’s funny – in Greece / Spain / Italy / France you can stay in the sun all day and not burn, just turn a lovely brown – in Aus half an hour in the sun and you are burned. All the little kids here are wearing neck-to-knee rashies and floppy hats – it looks like something from the 19th century!
x
h
Hello Heather,
Are you trading QQQ with the Bull DITM Strategy?
After reading your books I don’t recall that you mentioned a QQQ trade similar to the SPY?
Thanks,
John 1/6/24
HI John
Yes, I do trade QQQ with the Bull ITM strategy – I don’t mention it in the books as I wanted to keep ITM as simple and clear as possible. QQQ doesn’t go back as far as SPY (only to 1999) so I couldn’t backtest for 30 years.
But, yes, I do trade it and it has proved very successful – apart from last night which was bl(*&dy awful!
H
There should be protection against Lemmings…
Is there a cliff approaching or am looking at myself in the mirror.
Cape Coral FL
oh, I see! There have been a lot of shark sightings here recently – sharks are now a protected species!
Go figure!
Belated happy holidays… I’ve seen really big great whites enjoying the serenity water too…
O my that certainly looks like nice head and shoulders top in the Spied!
As Lynch stated charts are a great predictor of the past.
1. Biden hands out awards to all his friends
2. Space junk lands woman decides to sue NASA
3. Trillions in debt that nobody talks about… Yeah I can see a Bull emerging from a doom and gloom scenario ( but first – we need to hear some more bad news ).
R
Question – do you wait for confirmation of a bear market ( a count down – or what is the confirmation ( keeps going down ) ?
Hi Randy – are you in WA?
Re confirmation of a bear market: to get out of a bull trade use the 10/200 death cross, which should be well in advance of the 20% drop needed for the start of the bear.
h