Can You Bear It?

Heather Cullen

Heather Cullen

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In The Money

Heather Cullen BLOG IN The Money BEAR

Bearing Up?

Finally, we’re out of the bear market  – but the euphoria was short lived. Things aren’t going swimmingly (groan). This week hasn’t been easy.

First of all – an apology – this is going to be a short post just going over the charts and  I will update with more detail in a couple of days. As  you know I am travelling, and its not always easy to get the time and the connection I need. I am going out to dinner with friends shortly so doing this directly on the website, so there will probably be a few rough edges! So let’s get down to it.

UPDATE 2 DAYS LATER: Now in Scotland and have a decent internet connection. So updating the blog below. Will preface the update bits with the word UPDATE:

SPY Chart

Last blog post we were sitting right on the bear exit, with a doji candle, wondering if  we were going to break out. And we did – quite dramatically. Four lovely up days! It definitely made a pleasant change. BUT – all good things have to come to an end etc etc, and on Friday we had triple witching. As I expected, the market dropped, not hugely but formed a dark cloud cover candlestick pattern. So last weekend I was not terribly upset, in fact I was quite philosophical.

But – this week has been dismal. After the holiday Monday it has been very disappointing.

I don’t usually publish my predictions as it is a sure way of looking foolish because somehow the market knows and punishes you (OK, only joking) but I have been expecting that it will drop back to the bear threshold and test it. No reason, just from observation that that is what seems to have happened in the past.

Heather Cullen Blog SPY chart

If that does happen then we have some more pain to come but not an enormous amount – only 0.8%. But it will still hurt.

UPDATE 2 DAYS LATER: Well, yesterday was nasty, today has been very good. How did my prediction go? OK, close but not spectacular. SPY continued down towards the bear exit of $429.80 but stopped at $431.44, then rebounded. So it came within 0.373% of my prediction – but that’s not good enough for me to think I am good at this. It should have been exact. But you get the general idea.

As I am writing this the market has just closed. There has been a strong rebound of 1.21% to $435.53. Will this hold? I don’t know, but I  suspect that it will – anyway, fingers crossed.

SPYG Chart

The SPYG chart is following the same pattern as SPY.  If it drops to the bear exit then it has a longer way to go – 1.4%.

Heather Cullen Blog SPYG chart

UPDATE: same as for SPY – droped towards the bear exit and rebounded strongly. Fingers crossed that it keeps going.

QQQ Chart

The QQQ chart (the Nasdaq ETF) is quite different. As I’ve pointed out before, it dropped a lot more than SPY (33% to 20%, from memory, may not be right but close) and so its recovery was more abrupt. It climbed out of bear territory some months ago.

However, it still has followed the same pattern as SPY and SPYG for the last 2 weeks, just not quite so marked.

UPDATE: A spectacular rebound today of 1.76% (after a dismal drop yesterday). With QQQ there isn’t a significant level for it to drop to (it’s well above the bear exit) so no predictions excpet that it looks more bullish than bearish to me.

ITMeter

Going out on a limb here!

Heather Cullen In The Money Blog ITMeter

UPDATE: well, yesterday I was feeling a bit like this:

Heather Cullen Blog out on a limb

But today I feel a bit more like this:

Just note that it is a very little branch!

The SMUG Index

I’ve mentioned my ‘SMUG Index’ before – well, it was in full force last Thursday the 15th June. I was aware of it what it was warning me, and I was aware of the danger of triple witching  the next day – but did I do anything sensible like get out of my ATM / OTM positions?

NO.

And regretting it, obviously.

But now I have to go, will complete this in a day or so. Travelling to Scotland, then I will update this. and add extra information. Just wanted it to be available before market open.

Fingers crossed for a bounce this week.

UPDATE: After kicking myself for the better part of a week (always an uncomfortable waste of time) I am hoping all will be well. As I have mentioned on the books and in this blog, I play with ATM and OTM options, but with less than 10% of my total portfolio. So if things go south it will hurt but I wont be wiped out. BUT –  I should really pay attention to my SMUG index. It is uncanny how accurate it is – and also how strange that I usually dismiss it (‘this time its different’ – heard that before?)

Daytrading Experiment

Tom Hougaard is back – but I am afraid I haven’t been. I’ve been too busy travelling and cramming everything in! I have checked his results from time to time, and it doesn’t look like I / we have missed out on a wonderful winning streak – but I haven’t been checking properly. Mea culpa.  I will try to do better. 

Travels

And today I have just arrived in Scotland. Staying at a lovely place called Cornhill Castle. Very Victorian, and lovely views. Last time I was here there was lovely weather:

Heather Cullen Blog Tinto 1

This time not so great:

Yes, Tinto (the hill) is behind the clouds. Let’s hope tomorrow I wake up to a beautiful view. (and if you want to see more travel photos here’s a link to FB: Heather Cullen )

UPDATE: Let’s hope today’s bounce is the end of the pain. I don’t think that there are many announcements / figures for the rest of the week. I hope not! Just want some stability and to catch my breath!

Heather

9 thoughts on “Can You Bear It?”

  1. Hi Heather,
    I recently came into some extra money. I’m guessing it is better to wait to buy a SPY option now with the recent upturn. How do I know when is the right time to get into an option again?
    Wishing you a good 4th of July! And many thanks for all you do for us!
    Charity

    1. Hi Ray
      It was a facetious index that I talk about in the ITM Bear book. I have noticed that when I feel particularly smug and self-satified about my trading performance the market usually spanks me shortly afterwards!
      When I am smug (it is easy to notice, I update my wealth spreadsheet more than once a day, just for the pleasure of it) I usually check for exposure in ATM and OTM positions (they being most vulnerable to a downturn) and take profits. But I didn’t this time, and, of course, regretted it. But it has worked out fine they are now above where they were when I was smug.
      It doesn’t have any effect on the ITM and ITMB strategies, just the 10% I allocate to ATM / OTM positions, and is just laughing at myself and my behaviour.
      h

  2. (From Andy) I read your itm call book. A very simple yet elegant strategy. The only question I have is the deep itm options a year in the future are very thinly traded. The same strike in the near term (about half the stock price) is even thinner. So if the market does not move much in a year, and I go to roll it, doesn’t look like there would be many buyers. Am I missing something?

    1. Hi Andy
      Thin volume isn’t a problem with SPY options. The spread is the same (i.e. tight) no matter what strike option you choose. If you have a look at the option chain you will see that strikes with high OI (Open Interest) have the same spread as strikes with a low OI. This is because SPY options are the most traded options on the market, and the market makers have to provide a tight spread for all strikes (it is mandated).
      So it doesn’t matter if it is thinly traded – the market makers will always be there to buy from you at a tight, mandated spread. Just have a look at the options chain and compare spreads on high OI and low OI – you will see that they are the same.
      This is not the case when trading options on thinly-traded stocks. The spreads can be huge in that case. The spreads the market makers must offer vary with the stock / ETF, not the strike.
      Hope this helps.
      h
      (I would give some examples from the actual option chain today but I am on an insecure connection and my secure hotspot is not working so don’t want to login to any of my accounts to get the chain. I have covered this topic in previous blog posts using actual data if you want to have a look.)

  3. Hi Heather So as far as SPYG goes it starts a bull market at 59.42 right? Recent low 49.42 on 10/12/22 Plus 20% equals 59.42! Read all your books!! Great insight! Are you looking to add the .50 histogram for getting out of the bull trade? Thank you

    1. Hi Jim, posted your question here so others can see the answer.
      You are almost right – SPYG bottomed at $49.14 on the 14th October (I use closing prices not intra-day prices) so 20% above that is $58.97 and that is when it exits the bear market. It did that on 9th JUne and is still trading above mit so we can say that the bear market is over.
      BUT – that does not necessarily mean that we start a bull market. The definition of a bull market, unlike tha definition of a bear market, varies enormously, but luckily we don’t need that for an ITM Bull trade. We are just looking for the 10/200 SMA golden cross which happened at the end of March. So if you are following the ITM strategy you should be in a bull trade right now.
      But no matter if you have missed the boat – now is probably a good time to get in due to the recent retracement.
      And then keep your fingers crossed that it really IS the start of a bull market!
      Hope this helps – if not clear please get back to me. And thank you for your kind words!
      h

  4. Hi Heather: In reviewing your books multiple times, is there a page/s that summarize the steps that identify the emergence of a bear market from a bull market and vice versa. After reading the books and then trying to summarize these steps into a simple, orderly format, it turned out to be more difficult that I thought. As I recall, there is a 20% test, 1 vs. 2 indicators (bull vs. bear), threshhold lines, exit/entry lines death cross epa’s, etc. There must be a way to summarize this info for quick reference. I have both books but not the compare strategies book. Are the steps summarized in that one? Thanks, and hope you are enjoying your trip. Sounds amazing!! Buck

    1. Hi Buck, I actually haven’t got my books with me so I can’t refer you to any pages – but here’s a summary:
      1. Bull market – to do ITM we dont have to wait for an official bull market, but can do a bull trade when there is a golden cross (10/200 day SMA) + 1 day confirmation to make sure it really happened not just touched and bounced off (which often happens). The golden cross happened in late March so we have been in a bull trade since then. If you aren’t already on board now may be a good time to do so given the recent retracement.
      2. Bear market – there are many different criteria for a bear market – most mention the 20% drop, but some say it has to be over an extended period, like 4 months. If we take this definition then the Covid bear didn’t happen! So we just go with the 20% drop. We have just come out of a bear market quite decisively (20% from the bottom) so SPY has to drop 20% from its most recent peak to get back into a bear market. That’s not going to happen in a hurry (unless there is a disaster like Covid) so we won’t be doing a bear trade for a while yet – hopefully some years!
      There is some more explanation in this blog post: https://heathercullen.com/is-it-a-bull-trap-2/
      Hope this helps.

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