Bull Runs

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Heather Cullen

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In The Money

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

Bull Runs & Bear Markets.

I used the term ‘bull run’ last week which may have caused confusion, as a bull run is not the same beast as a bull market. Let me explain.

Bear Markets

Let’s start with bear markets. The start of a bear market is when it has fallen 20% from recent highs. This is a technical definition; and sometimes does not reflect what is actually happening. For example, if we look at the period 2000 – 2003, we see that the peak in March 2000 was $153.56. Here are the bear markets in the red rectangles.

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets
  • SPY entered a bear market in early March 2001 when it dropped below $122.85.
  • It reached a low of $110.39 on 3rd
  • It bounced almost 20%, then proceeded to drop again to a low of $97.28 in September.
  • It then rallied over 20% to reach a high of $117.34 in December, so technically the bear market was over.
  • This level proved to be resistance, and the market dropped, reentering a bear market in July 2002.
  • The lowest point was $79.95 in July
  • It then rallied out of the bear market in August, reaching a peak of $96.68
  • It then narrowly avoided reentering a bear market in October.

You can see that the bear market definition doesn’t really help us very much. It isn’t telling you that the market is going down, only that it has already gone down, which anyone can see by looking at the chart. Not helpful.

Bull Markets

Bull markets are defined as starting when there is a rise of 20% from the low. – in other words, the end of the bear market means the start of a bull market.

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

Now have another look at the chart – the green rectangles are the bull markets. Do they look particularly bullish to you? I don’t think so, we even had a new low during October 2022 when we were in a bull market.

Bull & Bear Markets

We can see that the definitions are not helpful other than to classify in hindsight. That is why ITM depends on the concept of a bull run, not a bull market. A bull run is a shorter term period when prices are rising, and an ITM bull run is from the golden cross to the death cross. Of course, within that there can be several shorter technical bull runs, and some bear runs like we had in July and September this year, but that it the ITM bull run.

How did ITM do in the 2001 Bear Market?

Well, she said rather smugly, ITM went pretty well! Have a look at the chart with the 10/200 SMA crosses.

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

You can see that ITM got us out well before the bear market started and kept us out until the bear market was over. You could then have bought your positions back at 61% of the price that you sold at. A nice way to give your portfolio bottom line a nice boost!

The point I am making is that bull and bear markets are just AFTER the fact descriptors. They don’t help us trade in any meaningful way.

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

I hope this clears up any confusion over last week’s mention of a bull run. The takeaway is simple: a bull run is not the same as a bull market.

(Re trading the bear – the ITM Bear book gives a trade by trade description of exactly what we traded, and when, and why)

Pessimists & Catastrophists

As I pointed out last week,  both the S&P 500 and the Dow are making  new highs, but I can’t see much in the way of euphoria. However, there is never any shortage of doomsayers with apocalyptic warnings.

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

Good observation, still relevant today. Although, I found John Stuart Mill’s discussion of free will in his book ‘On Liberty’ pretty turgid, so have always absolutely loved the Python’s ‘Philosopher’s Song’.

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

Stock Market Books

I have just read ‘Never Enough’ by Andrew Wilkinson – a tech entrepreneur, so not directly related to trading, but useful for insights into human behavior.  I thought it was great, couldn’t stop reading it.

I also read the Psychology of Money by Morgan Housel.

All the way through I kept getting this nagging feeling I knew what he was going to say next – and at the end realized I did know because I had read it before! Obviously it wasn’t memorable.

But here’s the link anyway. The bit at the end about the rise of the American Consumer is excellent.

A trader brought this book to my attention, and as I was interested in the whole right brain / left brain thing I bought it.

Unfortunately I am bogged down in the general stuff at the beginning which isn’t telling me anything new. We haven’t really got onto trading yet.

I will persevere, but it’s not very enthralling. Anyone else read it?

ITM Chat

Several traders alerted me that it was requiring a login. I think I have fixed it, please let me know if there are any more problems with logins. Here’s the link: ITM Chat – Heather Cullen : In The Money Online

To the markets . .

Quite a nice week, despite two big down days. Bank earnings have all been positive, which is a good sign for the economy. (or at least, traders think it is a good sign), and Netflix surprised to the upside.

SPY made 2 new highs this week – but, as is strange in this bull market, no-one seemed to notice. Except us, of course!

SPY Charts

SPY is looking nice. After bouncing along support / resistance it has headed upwards again. The market is still very skittish as you can see from the 2 big red down candles, it feels like it is just looking for bad news. However, it is proving remarkably resilient in the fact of the looming election.

The weekly chart has no surprises – the uptrend is still intact.

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

SPYG Charts

Woohoo! 🥳!SPYG has pierced resistance at the previous high! Only just and it is bouncing along it, but it is going nice and steady, so hopefully this week it will break through decisively. Fingers crossed.

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

The weekly chart shows no surprises, the uptrend still intact.

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

QQQ Charts

QQQ is approaching its previous high, and showing signs of consolidation at this level. Tech earnings could cause some volatility soon, let’s hope it surprises on the up side.

And the longer term chart shows that it is back in the trading channel.

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

VIX Chart (Volatility)

The VIX is settling down, just below 20, low volatility territory.

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

ITMeter

Heather Cullen Blog ITMeter

The week ahead . . .

Tesla (TSLA) is the first of the big techs to report, after market close on Wednesday. Others this week include Coca-Cola (KO), IBM, GM and Verizon (VZ). Luckily, it’s a relatively quiet week from the Fed – but reports on housing, durable good, consumer sentiment and initial jobless claims may give some volatility.

The futures:

What a difference a few hours makes. I took this snapshot around 5 hours ago:

Heather Cullen Blog In The Money ITM Strategy Bull runs Bull Markets

And this one a few minutes ago:

 

It is still over 6 hours until market open so feel free to choose which one you want!

Fingers crossed for a good week!

Heather

Q & A

19 Responses

  1. Hi Heather, I have your three of your books but it seems I never came across a section on ‘stop losses’. Is that even appropriate to our DITM strategy?
    Jolly

    1. Hi Jolly
      no, ITM does not use stop losses. I did have a section on trailing stops in the Bull book, chapter 2, but its not part of the ITM strategy.
      I do understanhd the allure of stop losses but you have to look at their cumulative effects on your balance. You are always selling when the market has gone down! Not a good strategy, in my opinion.
      But I do understand that it makes people feel ‘safer’.
      Hope this helps
      h

  2. Good evening. I bought the Bear Book paperback on Amazon and it arrived today I had it on Kindle but wanted a copy I could hold and read. I have the Bull book 2022; is there a significant difference in the 2024 book? Hope all is going well for you. I am not in the Market at the present time but playing futures trades on the DOW. Thanks in advance

    Bob

    1. Hi Bob,
      the basic strategy is the same, but I updated it with figures to the end of 2023, and separated out the 50% and 60% strike results. I also fixed up some bits that I though were not clear, and updated some charts. Put in some more info about leverage and a few other things.
      Basically, the strategy is the same – no changes there!
      Hope this helps.
      h

  3. Heather, I have purchased 9 call options in SPY in the last 6 weeks. So far, very good. I purchased them with a strike price equal to 60% of the current SPY Price. If I remember correctly from your book, a strike at priced at 60% can triple the return of SPY itself while a strike at 50% would yield double the return of SPY itself. I know this cuts both ways, both in making or losing money on a trade. What I was wondering, is why does buying the 60% strike yield a higher return? Also, would you ever recommend going to 70% or more in a particular scenario? I am very excited to be trying your system as my portfolio is a bit smaller than it should be at my age. Your research and hard work looks solid to me and I am glad you decided to share with the world. Thank you and I look forward to your reply. Erich

    1. Hi Erich, to answer your questions 1 by 1:
       A 50% strike gives you 100% leverage (if SPY goes up 10% you will go up 20%). A 60% strike gives you 125% leverage (if SPY goes up 10% you will go up 25%). Compounding increases this return over time.
       Yes, it works on the downside also – that’s why we have the GET OUT signal.
       The 60% return is higher because of this leverage – I will do a bit on the next blog about this as it seems that this confuses a lot of traders.
       70% return – getting into dangerous territory here – more volatile, and you would have a significant amount of time value. Again, will address in next week’s blog.
      And thank you for your kind words!
      h

      1. Hi Heather,

        On your previous blog you mentioned that you trade several versions of the ITM systems. One that came to mind is an aggressive one where you hold options on the SPY for no more than 3 months. Would you please share that system with us? Regards – Jude

        1. Hi Jade, I’d be happy to share it, but it doesn’t have strict rules around it and relies a bit on my reading of the charts.
          I only use a small percentage (less than 10%) of my portfolio on it, as it is risky and one day I will get wiped out. That’s why I keep squirreling away the profits into less risky DITM options and some stock.
          Everything is based on SPY and QQQ, I use ATM and OTM options, 3 – 4 months to expiry, and roll when they are high in profit, put some money into DITM, then buy some more OTM or ATM, keeping the percentage below 10%. This way I am protecting my capital.
          Using this strategy, you can win big (one of my accounts is up 375% for the year) BUT it is risky. If another Covid came along I would lose big time – but I won’t be wiped out as I control what percentage of my account is in these risky strategies.
          It isn’t something I would recommend that anyone do unless they are prepared to lose money – I know it WILL happen, it is only a matter of time. 90% of my portfolio is standard ITM or straight SPY / QQQ stock.
          Hope this helps.
          h

  4. Hi Heather. Read your books and love them. I will be jumping into ITM soon. I have a couple of questions though. 1) Is turbo charging ITM mean rolling out and up before expiry? I know that is in your book but just want to make sure. 2) When is a good time to roll up and/or out? 3) I noticed in your book that 60% strike calls do better than 50% strike. Is 60% strike the way to go even with the higher risk? Okay that was three questions. Thank you so much for your book and your wisdom. Andy

    1. HI Andy,
      to take your questions one by one:
      1) Is turbo charging ITM mean rolling out and up before expiry? I know that is in your book but just want to make sure.
      Ans: In the first edition of ITM I used the word ‘turbo charge’ to mean using spare money while you were waiting to be able to afford another SPY options. I suggested that you could invest in SPY shares, SPYG options (as they are cheaper) or flutter on an OTM options (with major proviso – a VERY small part of your total account). I soon realised that keeping tabs on all the different possibilities when people were all starting at different times and choosing different combinations was quite impossible, so although I still think they are a good idea I didn’t make a point of it in later editions. Rolling up can be seen as a ‘turbo charge’ as you are getting more leverage – there have been a lot of questions about this recently, I will do next week’s blog on it.
      2) When is a good time to roll up and/or out?
      Rolling OUT depends on what time value you have. If it is small (less than 1%) then it doesn’t really matter all that much, although 30 days before expiry is a good rule of thumb. .
      Rolling UP depends on how much SPY has gone up. As it rises your strike percentage goes down, which means you leverage goes down also, and rolling up is a way to get back to 50% (or 60% if that’s what you have chosen)
      3) I noticed in your book that 60% strike calls do better than 50% strike. Is 60% strike the way to go even with the higher risk? 60% strike calls have bigger profits AND losses than 50% strike calls – i.e. there is more risk. I will go into that more in next week’s blog.
      Hope this helps.
      h

  5. This great explanation of and talk of Bull Runs and Bull and Bear Markets brought to mind a great old quote that applies to Trading and Investing that I had almost forgotten. “It is not the same to talk of bulls as to be in the bullring.” Spanish proverb. The Charts tell it all but still who knows what tomorrow brings. Great stuff Heather!

  6. Hi Heather,

    Once again, I appreciate your insight. Additionally, one of the aspects of the ITM strategy that I truly appreciate is that the entry/exit signals are clear and unambiguous. It’s such a relief not to have to read about overall macro trends and the constant doom-mongering in the financial media.

    Also, I tried looking for a search function for the blog in your main navigation menu bur I couldn’t find it. Can you confirm whether or not you have a search function for the blog on the website?

    Thanks,

    Ankur Shah

    1. HI Ankur – its on my list of todos!
      I have to go back and reclassify all the previous posts and find some way of indexing them – it has been in the too hard basket but it is time I bit the bullet!
      I will get to it in the next couple of weeks.
      h

  7. Dear Heather,
    Thank you for your weekly blog as always. Regarding the ITM method, why do we need to buy the LEAPS call of SPY with at least 9 months of expiry? Can we buy SPY call with 3 months expiry or 6 months expiry?
    Sincerely,
    George Halongton

    1. Hi George,
      the reason I chose SPY with 1 year to expiry in the original book was because it was then possibe to get strikes up to 65% or more with less than 1% time value. I thought that making the strategy as ‘hands-off’ as possible was the best way to go.
      In subsequent updates I have pointed out that as interest rates rise so too does the price of options and getting a low (around 1%) time value is not so easy any more. Hence I have recently been saying that 6 months to expiry is fine – just you have to roll more frequently.
      Re 3 – 6 months – if you are fine with rolling more frequently that is fine too.
      h

  8. Hi Heather, I just finished the book “ITM Bull Market”, and I found the strategy very interesting, so thank you for the book. I think before starting with the ITM strategy, I’ll try ITMS. I saw that in the backtesting section there are PDF data for this strategy up to 2024. This table is misaligned in the pdf; would it be possible to share the Excel file? I have a question about its application to other markets with long-term positive trends. Have you tried testing the strategy with QQQ / QQQM? I understand the volatility will be higher, but during bullish periods, they offer better performance. Thanks! Ramon

    1. Hi Ramon
      re QQQ – I have backtested it (but only for the last 10 years) and it works well, but I did not include the results in the books as I wanted to keep ITM simple. That’s why I include it in the commentary each blog post.
      Re sharing the excel files – I have learned the hard way that when I do that some people (definitely not all!) change a few things and then claim that I have ‘massaged’ the figures. I know that I haven’t – however, it takes time tracking down where they have changed it and pointing that out.
      I am not suggesting for a minute that that is what YOU would do – but just the reality of pulishing the files. However, I have detailed the way that you can replicate the backtesting and use it for any7 data you want – here’s the link: https://heathercullen.com/backtesting/ The ‘download ITM backtesting documentation’ gives you all the instruations about creating your own backtesting model.
      Hope this helps
      h

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