Some Bulls, Some Bears
Well, the last 2 days have been interesting – both positive green candles with small shadows showing conviction among traders. Notice how the 200 SMA is pulling away from the trend line and becoming horizontal, and that SPY is trading over the 10 SMA for the first time since mid-February. Positive signs, but we are not out of the woods yet.
The next resistance line will be the top of $429 in mid-August. Sound familiar? Yes, it is almost the same as the level we need to get out of the bear market, $428.
What is going to happen next? No idea, but we note that SPY is making higher lows and higher highs, so possibly we may be starting a new bull market. Let’s hope so! So fed up with the bear.
(N.B. the ‘previous high’ marked on the chart is not the high point where the downtrend started, but the high of the most recent bull trap)
ITMS
SPYG is not quite so bullish as SPY, presumably because of the preponderance of tech stocks which were mauled much more by the bear, and hence have a steeper recovery. The Nasdaq (ETF: QQQ) dropped 35%, considerably more than the S&P 500 (ETF: SPY). You can see from the chart below that QQQ is mirroring SPY, in that the peaks and troughs are the same and it has broken its downtrend, but it is yet to climb out of the bear market.
SPYG is way off exiting the bear market and has yet to have another golden cross. As we saw last blog and the one before, its recovery has been rather unimpressive, and it has failed to maintain trading above the 200 SMA. It has, however, broken its downtrend which is a positive sign.
If you are following ITMS you will be out of the market, so we just have to wait for the next golden cross.
Day Trading Experiment
Well, looking a bit healthier than last time. I must stress that I am only doing very small trades as the margin requirements are such that I can have a maximum of 4 positions open on the DAX / FTSE / Nasdaq / S&P 500 at one time – or 1 position on the Dow. That has a huge margin requirement.
If you have read the book I recommended, Best Loser Wins by Tom Hougaard, you will know that it is all about controlling your own mind and hence your trading. I am using the experiment as a way to discover my own thinking about trading that I may not have realized, and I am finding out some very interesting things:
- I am completely hopeless at doing what I am told. I am apparently constitutionally unable to enter a recommended trade if it feels wrong. Notice ‘feels’. I understand that it is not good to trust ‘feelings’ but I think that sometimes your brain figures it out in advance of you logically working it out. I just remembered a book I read a few years ago, so went hunting for it, and found it. Malcolm Gladwell’s Blink: The Power of Thinking without Thinking. It is about those times when we ‘know’ without knowing why. I wonder if the years of staring at charts is finally paying off in real time? I have stayed out of quite a few trades that went the wrong way. Will keep monitoring this.
- I have always hated stops because I always get stopped out at absolutely the worst time. If I am trading live then I don’t use them as I will have drawn a line on the chart where I consider I am wrong about the trade and will exit around there. But sometimes – like last night – I feel that the market is going to keep rising and I don’t want to finish and sell just yet. I was long DAX and had to leave, so I put a stop where I thought I would be wrong about the DAX going up. And, naturally, I managed to put the stop at the lowest point that it reached, 15,465. If I had put the stop at 16,464 then I would have got another 162 points! So on a trade that had 4 positions open I would have made €648 which would have made my total for the week much nicer. Sigh. Such is life.
However, I am intrigued enough to keep going with the experiment, I will report on progress in the next blog post.
Note: the results above are not Tom Hougaard’s results, but mine. I did not follow many of his trades. His trades are all documented and available. Here is a link to his website. TraderTom.com.
Reader Q & A
If you can get the put at the right price then this sounds like a safe strategy. I have not tested it so can’t really comment. Just wondering if you are able to make is cost effective with options currently so expensive? I just checked the option chain and see that an ATM $405 strike expiry 48 days is $10.06 so it would cost you around $1K to protect $40K worth of SPY stock or $20K DITM at 50% leverage for less than 2 months. If the market did drop then it would be a good investment of course, but if it didn’t it is expensive insurance. However, if it is a way to manage your emotions then go for it! We all need to be able to do that.
Just checking today’s SPY chain for January 2024, and see that a delta of 0.8 starts at the $345 strike which is quite high for DITM options. The bid / ask for this is 77.28 / 79.41 giving an effective price of $422.28 / $424.41, which is approximately 5% away from the current price, so you are pauing 5% extra if you exercise.
I also had another look at the options playbook, and as you say the strategy is for stocks, although there is no reason you can’t do it with ETFs. As always, I caution against buying individual stocks as historically it has been shown that stock picking doesn’t work, something like 90% of people lose money.
Sure. Here is his website: Tradertom.com and it gives instructions on how to join and follow his live stream.
Yes, both the death and golden crosses should be confirmed by ‘white space’ between the SMAs.
Oof! This is one of these questions that has a confusing answer. The most recent high is the highest point in the chart over a specific time. For example, in a daily chart it is the highest price during that day. For ITM we use a daily chart so it is the highest point during the period of the chart which is usually 1 – 2 years. The highest point on SPY was in January 2022, and that has not been taken out (as in we have not traded up to that level since.) Downtrend lines should be started at that point and join at least 2 high points (bull traps) which means, of course, that they can change as bull traps happen.
I realize that this is a bit unsatisfactory, but as with all things in the market we can only be sure of them after the fact. The downtrend we would draw, say, in March 2022 is quite different to one we would draw on January 2023. Once we get out of the bear market then we can look at establishing another ‘last high’ but not until then. I feel this is not a very good explanation but hope it makes sense. Please get back to me if it doesn’t!
Hey Pulak! Very honest, trying to make a chart conform to what you THINK should be there is something I am sure we have all been guilty of!
I have, over the years, tried all these things and, like you, never found any to be consistently successful. Sometimes they work, sometimes they don’t – but here’s the real problem: we don’t know WHEN they are going to work – until afterwards, of course, when we are all perfect traders!
Hi – good question – but several people have beat you to it! It was answered in the Blog 5 February in the Q&A, 4th question. If that doesn’t answer your query then please get back to me. Here’s the link: Is It a New Bull Market?
Notification of Blog Posts
I am getting a lot of people saying that they are not getting notified about blog posts. I think the problem is the special updates. I update the blog every 2 weeks and send out an email.
If there is a special update (usually because we have a signal for ITM / ITMS) then I don’t send out an email because I didn’t want to swamp people with emails, but probably I should start. I will try it for a couple of months and see if I get any complaints!
Reading List
I have been sent a lot of information, links and book recommendations and I really appreciate them. I don’t want them to stop because it gives me an insight into what you are looking at and how you are thinking – but – I am just swamped at the moment, so if I haven’t answered / reviewed your book / link please don’t take it personally, I just don’t have enough time in my days to read all the things that I would like to!
ITM Bull Market Strategy – 2023 Update
The book update is finished, on final checks now. It will be available by next weekend. It has nothing new in the way of strategy, just updating the figures to Feb 2023 (and making sure that all the text reflects it) plus a review of our trading during the bear market of 2022. You do not have to get the new book, if you are following the blog then you will know almost everything that is in it. But please feel free to buy it if you wish! Just remember, if Amazon sends you the wrong one you will have to sort it out yourself – I have exactly the same Amazon service as you. Nothing special about authors!
Terrible Joke
Q. What do you call a crocodile in the stock market?
A. An Investigator
Yes, I know, but if you don’t send me any good ones they are not going to improve!
ITMeter
And finally
It’s a twitchy time in the market right now, so we have to keep a close eye on it – and keep our fingers crossed that we are starting a nice easy bull market where we can start making money again. This bear has gone on long enough! I’m sure you agree.
Heather
6 thoughts on “Bulls and Bears”
It is usual reserve
Hi – not sure what you mean?
Hi Heather,
I’m trying to understand the SPYG a little more. How do determine the bear threshold? Should I use the high from 8-16-22 or the high from 3-29-22? I also noticed that the MACD histogram rarely goes below -0.5 for the SPYG like it does for the SPY. Is there another level we could use to confirm our decision?
Thank you for all the help and support you offer to your readers. I look forward to your blog posts and your replies!!
Hey Charity! The high was $73.48 on the 27th December 2021, so the bear threshold is $58.78. SPYG first went into bear territory in April 2022, then came out briefly in August (but no golden cross so no ITM trade triggered) and has been below it ever since.
This is where it gets confusing wrt definitions. There was a low point on 16th June of $50.47, which means that to get out of bear territory it would have to climb above $60.56 – which it did for 5 days in August 2022, However, then it promptly went back into bear territory and made a new low of $49.14 on the 14th October 2022. As that is the lowest point to date it has to climb above $58.97 which it has not done yet.
As i said, the definitions can get confusing, as you could argul that we have actually had 2 bear markets in SPYG, on from Dec 21 – Aug 22 then from Aug 22 and continuing to date – but I think it makes more sense to combine them into one longer bear market – but it depends on whether you want to take the definition s to the letter.
Practically, with SPYG it does not matter too much as we don’t have a bear strategy for it only for SPY. Doing a bear trade on SPYG has not been tested, only the bull strategy on SPYG, and you dont need the MACD for the bull strategy. I could backtest and look for a strategy that would work, but quite frankly I am backtested out right now! Maybe in the future!
(Actually, this was a good question, and a diagram / chart would have been helpful – I will do it in the next blog – thank you)
Hi Heather
as far as the protection ,you can get the cost lowered by selling a call at 30-40 delta for 40 -60 days and buying a put at the money that will reduce the cost and once the market is trending in the bullish direction ,you can take the collard off.
lately the market has not been EASY
regards,
Raymond Limansky
Hey Raymond! Great that you have worked that out, I can’t seem to get the figures to add up for me. Let me know how it goes!
h
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