Bull Market: Worst Case Scenario

Heather Cullen

Heather Cullen

In The Money

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Bull Market: Worst Case Scenario

Hi everyone! Totally fed up with this market, not to mention the hate mail that I have been receiving, but let’s look at the facts on where we are and how we are doing.

When ITM paperback was published on September 24 2020 (yes, the eBook shows a slightly earlier date, that was a practice upload to check how the system worked) SPY was trading at $326.97 (closing price, which is used for all calculations in ITM)

The bull market was intact until this year (2022) when it went into a slump, entering a bear market on 13th June (one month into my summer in Europe – thank you Mr Market!). I haven’t checked the figures myself (I’m on holiday!) but it is widely reported that this has been the worst first half since the early 1970s. That’s 50 years! No wonder we are feeling the pain.

ITM Bull Market Strategy

If we had been following the ITM strategy we got out on the 24th February when there was confirmed ‘white space’ between the SMAs. Checking the charts and the blog, it was either the 23rd or the 24th  February, depending on how much confirmation you wanted. SPY closed at $428.30 on the 24th.

On 31 Mar, we had a false signal that the bull market was going to continue, so re-entered a bull trade which was short-lived as the market started going down again. We exited again on 18th April at $437.97.

Heather Cullen In The Money SPY Chart

Worst Case Scenario

Let’s say that you had been extremely unlucky and entered on the highest day ever, at the height of the market, on the 3rd January 2022, when SPY was trading at $477.71. You would have got OUT signal on 24th Feb when SPY was $428.30. That is a drop of 10.3%. Even worse, we then bull traded a drop of 3%.

Nasty. I get it. No-one likes that. If you were working on 50% leverage, then you would be sitting on a loss of 26%. Just as ITM magnifies your profits it also magnifies your losses, which is why we rely on the OUT signals to save us from the worst of it.

BUT – where is SPY now? $388.67, a drop of 18.6%. Buying and holding the stock  isn’t looking too healthy either.

Best Case Scenario

Let’s look at the best-case scenario. Let’s say that you entered on the day that ITM was published. SPY was trading at $326.97. If you exited on the first ITM signal in February, then you would be chalking up a gain of 62% (at 50% leverage). You would then make a loss of 6% on the April bull trade, but overall, you would have made a gain of 56% in a year and a half.

Worst Case Vs Best Case

All traders know that many stock market books cherry-pick the data after the facts. There seems to be a lot of authors who somehow manage to get in at exactly the bottom and sell at exactly the top! I try to choose objective dates (like date of publication) rather than retrospective tops and bottoms.

Looking at the weekly chart going back to the start of 2020, we get a better picture of where we are:

In The Money Heather Cullen SPY weekly 10 july

I understand that this was a bull market, which is why ITM is called a bull market strategy. When it stops being a bull market then we don’t do it anymore. We get out. Which leads us into the bear trades.

Bear Market Scenario

We entered a bear market on 13th June, SPY at $373.87. Bad timing for me – my long-awaited post-covid holiday in Europe!!

But the trade was short-lived. We got the OUT signal on 28th June at $380.65. A market rise of 1.8%, but out signals were there so we got out. If we were leveraged as recommended in the Bear book then we lost 5.4%. Nasty. Who wants to lose 5.4%? Not me. And if you read the Bear ITM book you would see that using half, or less, of your capital on a bear trade was recommended. So, a loss of capital of 2.7%.

Not good. But really, was it worth the hate mail??

In The Money Heather Cullen SPY bear market trading

Was getting out a wise decision? I don’t know, the market is still not showing a clear direction. But we are out, and we can decide to get in or not. It is OUR decision.

Where to from here?

I am writing this before market open on Monday 11 June, and the futures are not looking good. I have a feeling that we haven’t seen the end of this downturn, but that’s all it is – a feeling. I have learned the hard way not to trade on feelings, but to trade an objective system.

Tuscany & Wealth

Currently I am in Tuscany, just outside of Sam Gimignano which is famous for its towers. At the height of its prosperity, in the 1300s (from memory), there were 72 towers. They were built by wealthy families to show off their wealth – yesterday’s version of owning a Ferrari!

Today, as you can see from the image, there are only 14 towers left. The families are long gone, the wealth also. All things shall pass. So will this bear market. When, I don’t know, but it will.

I will stop before I get too philosophical!

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