Bye Bye to the Bear!
At least for the present. The recent dip, while unsettling, seemed to lack conviction. It had – to me – the hallmark of a hysterical reaction to political doom sayers, rather than a measured response to economic conditions. But you can never be sure, hence the decision to get out was the right one.
But is it a bull?
Not yet, but maybe it will grow. It is looking hopeful, but it’s not time to jump in just yet. We have a gap to fill before we get the golden cross and we’re only just out of correction territory.
But I’m sure we are all hoping for the bull to return so that we can get back to making money. Let’s check the charts.
To the markets
This week has been a big earnings week, dominated by tech. Microsoft and META had strong earnings, and AAPL also beat estimates but, like Amazon, suffered from projected losses due to tariffs.
Exxon and Chevron both had declines in profit, attributed partly to lower crude prices. Visa and Mastercard were positive.
SPY Charts
SPY rejected the bear level and has been trading above the correction level on reasonable volume for 4 days now. The 10 SMA has been trending up and looks as though it may form a golden cross around the 565-570 level. That’s if it keeps going on its current trajectory.
It would be quite normal behaviour for it to retrace and test the correction level for support before heading north again
On the long term chart, we can see that it has definitively bounced off the uptrend that started in 2023.
SPYG Charts
SPYG is also trading above correction level and looks as though it may make a golden cross around the 83/84 level. It’s also trading above the 200 SMA so that’s a good sign.
On the long term chart, it has bounced quite definitively off the 2021 high support level.
QQQ Charts
QQQ has also climbed out of correction territory and is trading at the 200 SMA level. Possible golden cross just under the 495 level.
On the weekly chart we can see that it is heading towards the trend line (red dashes). It is possible that it will find resistance at this level, which would be around 500 – a significant number (nothing magical – just because it is a round number and many traders think it significant and act accordingly)
VIX Chart (Volatility)
The VIX has settled down but is not yet back to low-volatility territory (below 20). It looks like it may be developing an uptrend starting November last year, but it is too early to draw that in yet. You can see that in the recent meltdown it reached the highest level since the covid bear.
ITMeter
The week ahead . . .
Earnings continue this week, but there’s no big tech among them. Only NVIDIA is left to repot, and they will do so later in May. They are always the last big tech to report.
The Fed is reporting on Wednesday and is expected to announce no change to interest rates.
It is too early for the futures, so no clues there.
Short, but (hopefully) sweet
The blog is shorter than usual because I’m in France. I am posting this early as tomorrow I will be travelling to Avignon to go to an immersive language course. My French definitely needs improving. I’ve been in Paris and the weather has been lovely, sunny and warm.
Paris is as beautiful as always, but the number of tourists is absurd. I thought that in early May I would be free of them (yes, I get the irony of a tourist complaining about other tourists) but no. Luckily, they all seem to hang out in the tourist spots so you can get away from them.
Here’s a photo of how things change to cater for them. This is Galleries Lafayette, a department store, and it is centred round a very beautiful dome. So many tourists were taking photos of it they built them an airbridge to take selfies on, totally ruining the whole space. They queue for hours to get on it!
More on Facebook
Much as I hate Facebook (everyone seems to use it as a place to exhibit their mean streak) it is the easiest way to keep family and friends updated on my whereabouts. If you are interested here’s the link:
https://www.facebook.com/heather.cullen.756
No selfies, I promise!
Fingers crossed for a good week!
Heather
Trade the tide, not the waves
12 Responses
Thank you Heather for your insight. I agree, just like a little assurance. Enjoy your holiday.
Did you ever comment on LEAP? If so, can you point me to it? Thanks and have a fun time.
Hey Mike
I know I have been associated ewith LEAPS, mainly because one of the first reviews on ITM slammed it and said I was only recommending buying LEAPS and that you would be better off using a leveraged ETF. (Hmmmm – see below for advice on leveraged ETFs)
There is nothing wrong with using ITM on LEAPS – but there are 2 downsides: 1) you are paying for time value that you probably don’t need because 2) as SPY goes up your option will go deeped=r and deeper ITM which means that you leverage is reduced.
ITM has been tested on 50% and 60% strikes. If you start with a 50% strike and hold for 2 years it may end up as a 30% strike. Which will still make more money than buy-and-hold, but less than if you had rolled up every 6 or so months and ketp you strike around 50%.
I hope this makes sense; if not pllease get back to me.
h
Thanks Heather!
Dear Heather,
Thank you for your weekly blogs as always. Since you are in France right now, please say hi to President Macron for us (just kidding). By the way, I realize that since we take our money out when the ITM strategy experiences the death cross of 10ma below 200ma, then we can invest some of the cash in TQQQ and/or SPYU since the stock market is going down and we can dollar cost averaging some of our cash into TQQQ and SPYU and wait for the golden cross (10ma above 200ma) to get back in. Please let me know what you think about this additional strategy. Thank you.
Sincerely,
George Henry
Bad, Bad idea George. These are intended for day traders not long term investing. In a bear market you would get killed!
Hey George – I would very much consel against playing with leveraged ETFs. they are reset daily and can wipe you out really quickly.
I think I have done some blog posts on this – just checked, yes, here they are:
https://heathercullen.com/why-not-use-a-leveraged-etf/
https://heathercullen.com/stock-market-or-casino/
There’s also a bit about them in the more recent editions of both the bull and the bear book.
Its my strong recommendation that you don’t use them – yes, you can be lucky, but the odds are against you.
Hope this helps.
h
Thank you, Heather and also thank you, Jim, for your warnings. Happy Mother’s Day from Los Angeles.
Hope you enjoy your time in France.
Questions
1. When the Golden Cross occurs do you consider whether or not SPY is over bought/extended? Why or why not?
2. Would you suggest any over bought/extended indicators to confirm the Golden Cross?
Thank you
Hi again Michael – the answer is below – and basically it says no other indicators are suggested or recommended.
I very much beleve in the KISS principle – I’ve traded complicated strategies in the past and always end up getting burned!
h
Hi Heather, Hope you’re enjoying your holiday! Questions : 1) does it matter if SPY is over bought at the time of the Golden Cross? 2) how does one determine if SPY is over bought (stochastic o RSI or Bollinger) at the time of the Golden Cross? 3) should one wait for the first pullback if SPY is over bought at the time of the Golden Cross? Thank you.
HI Michael, no to all questions.
The only indicator is the 10/200 SMA golden cross. I have tested with various combinations of indicators, but hhaven’t found any that beat the simple cross. That’s not to say that no-one else can find a magic combination, but I have found that the more indicators I use and the more complicated I get the worse my results are.
Over bough conditions can last some time – as can underbought, and they may keep you out of a good trade if you wait. And waiting for a pullback – again, thats going to keep you out – in a strong bull any pullbacks may be short lived – and sometimes you there is a pullback but it is at a higher level than the initial ‘get IN’ signal.
So – ITM has been teste don the simple 10/200 SMA golden cross and not other indicators are necessary for the bull market strategy.
Hope this helps.
h