Bull Market Blues
Firstly, thank you to one of my readers, Asi, who sent me the meme above. It’s very appropriate!
Right now, we are still on the sidelines (how fed up I am writing that all the time). But as you can see from the chart there is no clear direction. We are not near an ITM Get In signal – the gap seems to be about 20 points as of today. Are we going to get there? I don’t know, but I notice that the last time SPY was at this level it paused then retreated. In the current chart we are paused at almost exactly the same level. Hopefully by next Blog post we will have some direction.
The VIX has been steadily retreating since mid June, and is approaching the ‘no worry’ level of 20. I’ve put a 10/200 SMA on the chart so that you can see that there is a clear death cross, which is good. We want the VIX to be low because the market is more predictable.
Was it a bull market signal?
Probably not, but it did make me laugh out loud. I was wandering around a medieval Tuscan house with a loggia and thinking about the market (sacrilege, I know, in such surroundings) and I looked up at the fresco and saw an incredibly annoyed-looking bull. My feelings exactly!!
Q & A
Some reader’s questions from the last week:
I’d like to branch out a bit. Does ITM work with QQQ?
The concept of buying DITM options for the longer term (but not LEAPS) will work with QQQ (the Nasdaq ETF) in the same way that it works for SPY – with one proviso: we don’t know what the long-term results are. The backtesting for ITM on SPY has been done visually and manually, rather than using a back-testing program. The reasoning behind doing it that way is that we were seeing how the market looked on that day and at that time, so we come as close as we can to the actual experience of applying the rules not knowing what was going to happen the next and subsequent days.
Doing the backtesting on QQQ would be simple, just time consuming, and my gut feeling is that the parameters (the 10/200 SMA) would have to be tweaked, as it is unlikely that the same parameters will work. So, all you need is time and patience to work out what parameters fit QQQ and backtest for 30 years! (and the same for IWM and GOLD and the others I get asked about).
Why don’t you use the 50/200 SMA cross as a signal? Everybody else seems to.
I know that the 50/200 cross is watched closely and gives us an idea what other traders are going to do when it happens, but on testing I did not find it to be useful as an in or out signal. It is too slow to respond, so by the time it has happened the change is well and truly past, and we have missed out on a lot of the trend. Of course, that happens with ITM also, just not as much. In the ITM Bull book I go through how much of the trend we miss in each of the situations when we have waited to be sure that the bull trend has started.
I am very much a pragmatist; if something works then I use it, if it doesn’t work then it doesn’t matter how many other people use it, I won’t be using it.
Why don’t you trade bonds?
Easy. Every time I have done it in the past I have gotten burned. I’m sure there must be a way of trading them successfully but to be honest, I’ve never managed it and have not been motivated to persevere. So not saying its not possible, just that I can’t help you there.
Why not use ITM on the big blue-chips like AAPL and AMZN?
As I explain in the books, I don’t really trade individual stocks. OK, from time to time I have a flutter, but that’s all it is. If you think about it, the people who buy AAPL (or any other) stock are a subset of traders. They may be completely different to people who buy, say, oil stocks or bank stocks, and they may be completely different to the people who bought AAPL stocks last year and the year before.
Trading SPY you are getting the whole market which is much more predictable, and unlikely to be affected by events that affect individual stocks.
How did the Romans Do It?
The walk through 37’ heat was worth it – I found it – and how beautiful. 2,000 years old and the last arch standing (the others came down only in the last century or so). How did they make it? After looking at this, then the beautiful coliseum in Nimes, I was hit by 2 questions:
- How on earth did they do the math using roman numerals?
- Why are we still using roman numerals today?
Naturally, I asked Mr Google and went down a rabbit hole – but the short answer is that they used abacuses for calculations, and these were either to the base 10 or the base 12. Which then poses the question: how did they translate from the abacus to writing it down in roman numerals? At that point I decided that I was still on holiday, and I’d work it out later! No doubt some of my readers know way more about it than I do.
On the second question: no idea. Just seems silly to me! Any ideas?
Back in France
Yes, Switzerland, Italy and Spain are great – but France is my favourite. I still have 2 weeks left and am going to make the most of them before going back the Australian spring.
