Consolidation: a Sideways Market

Heather Cullen

Heather Cullen

Author
In The Money

Heather Cullen Blog SPY Nothing Burger

A Nothing Burger?

After going up steadily in January, February has been a bit of a disappointment. After making new highs on Feb 1st and 2nd, it has been trading sideways within the trading range of the intraday highs and lows of those dates. Irritating.

It is a good example of price consolidation, which means that the asset (in this case SPY) is oscillating between a support line and a resistance line. I have marked them on the chart above. Why does it happen? Because traders can’t make up their minds whether it is going up or going down, hence the low volatility.

When it breaks above resistance or below support then that is seen by traders as the way it is going to trend. From my own observations, the longer something stays in consolidation, especially if it is getting tighter and tighter, the more extreme the breakout. Here is an excellent example from 2015. SPY traded in a very tight range of $205 – $215 for 7 months before breaking out – in this case to the downside.

Heather Cullen Blog SPY Consolidation 2015

So, what can we infer from this? That we don’t know how long periods of consolidation will last, it could be months. But we can watch the current situation and if SPY trades above $417 or below $402 then we will have an indication of which way the market is likely to go.

Oh, for a crystal ball that worked!

(And don’t be mean about my photoshopping skills!)

ITMS : SPYG Trades

I have been getting a lot of queries about the SPYG golden cross. Yes, it has happened and yes there is white space between the SMAs. However, it doesn’t look all that convincing at the moment (it is in consolidation just like SPY, see above for discussion) so if you want to wait a couple of days that may be wise. If you are already in keep watching to make sure it doesn’t cross back again.

As to which options fit the strategy: the furthest out you can go is September 23, and the lowest strike in that months is $30 so this would be the choice. As of today it the bid ask on this option makes if and effective price of 0.6% – 2% above the current price. See the questions below for more detail.

Day Trading Experiment

I must stress that this is NOT reflective of Tom Hougaard’s results which are much better than mine. I missed several trades for various reasons.

I was onto them too late ( the market can move very quickly), I messed up the order (not quite used to the platform), I was not able to trade a couple of days (prior commitments) and one horrible day when the platform TD365 had a glitch: It did not show my orders, so I did them again several times and realized to my horror that they had ALL gone through – aaaarrrrggghhh! – then the platform glitch would not let me sell them so I had to sit and watch my money disappearing before my eyes.

It did not do much for my blood pressure.

There are a couple of things that I am uneasy about with the strategy, the main one being the strategy of letting your profits run and adding to your position when it is going in your favor. I understand the reasoning, but in practice it takes a bit of getting used to. Several times I was up a lot (50 – 100 points) in a trade, added to the position, then watched it dwindle to zero then took a loss. My results would have been a lot better if I had closed earlier. However, a deal is a deal – I am following the strategy. I will keep you posted.

ITM Bull Market Strategy Update

I am working on updating In The Money: Bull Market Strategy for 2023, so that the results reflect the bear market of last year. There is a glitch on Amazon’s platform (seriously, technology is not being kind to me this week!) which means that I can’t update it, only archive it. Not happy. Amazon is ‘looking into it’!

Rather than go through the pain of last year when Amazon was selling old versions of the book and everyone was getting upset, what I have decided to do is to update the backtesting results and make the new information in an extra chapter available on this website. I will post a link on the blog when it is done.

Obviously I am going through the text and updating it to the present, but there is not change to the strategy so you don’t have to get a new copy (although feel free!) If you have been reading the blog all year then there is nothing that you won’t already know. It should be available at the next blog update.

Timing The Market

I have just published a new book – a short one, just debunking the myth of the Buy-and-Hold Investment Strategy being the best, which has always annoyed me as it is so blatantly wrong. I haven’t yet advertised it (you have to pay Amazon before they will even display your books – unless you are Prince Harry I suppose!) so I was quite surprised to see this: the 

Heather Cullen Timing The Market

It is the first of a series of ‘short reads’ where I pick one topic, and concentrate on that. The ‘Buy and Hold’ strategy is one that was ripe for taking down. I was totally fed up with seeing and hearing about it and being told that it was the best strategy. It is hard to argue against when you don’t have the facts – so here they are. It is most definitely NOT the best strategy and here are the figures to prove it.

ChatGPT and Timing The Market

I’ve been playing with ChatGPT – fascinating! Here’s what it has to say about the Buy & Hold strategy:

For many investors, remaining invested in the market over the long term is often the most effective strategy for building wealth and achieving long-term financial goals.

Hmmmm . . ChatGPT is in on the conspiracy too! (Just joking, I know there isn’t really a conspiracy). Notice there are 2 weasel words, ‘ many’ and ‘often’, to make sure they are always correct.

Reader Q&A

I use simple moving averages (SMA) simply because that is what most people watch and make their decisions upon, so if we are trying to predict what the market is doing it is best to use the one that most traders use. Having said that, it does seem logical that EMAs should be more accurate, but on backtesting the SMAs worked better. Ever the pragmatist, that’s what I decided to use.

It happened on the 13th February, confirmed on the 14th so you could have entered on the 15th, However, it is trading below the 200 SMA now so perhaps you would be better to wait to make sure that it is going up first.

Hi Kishore – taking your points step by step:

  • 10/200 golden cross white space on the 14th – yes, this is right.
  • Current price $54.17 0 strike of $330 – yes, this is a good strike,
  • Expiry date September 2023 – yes, good.
  • Re the limit order – $24.20 – you may not have got filled, I see the last price was $24.30. of coure, I am seeing it a day after you so prices have moved. If you use a limit order the problem is that you may not get filled and the market may move up and get away from you. I tend to decide if I am getting into a trade, and then put in a bid at the ask price. Most times I get filled below this, usually around halfway between the bid / ask. This is on Charles Schwab where they have a best price guarantee. On Firstrade this doesn’t happen, so check with your broker what their policy is.

I post this blog every fortnight, before market open on the Monday. I also post here if thre is any change to the status. I notify everyone about the fortnightly blog, but I don’t want to bother everyone with updates as I am sure everyone has plenty of emails without my adding to them. Plus, I have to be wary of being blacklisted as SPAM. If you think that we are coming near to a signal, just have a quick look at the blog, the information will be there.

Indexes. The main European ones are the DAX (Germany) and the FTSE 100 (U.K.) The main U.S. ones are the Dow and the Nasdaq (Tech 100). The DAX and FTSE are mainly in the first hour of trading in Europe, and the Dow & Nasdaq in the first hour of trading of the U.S. market. There are also a few FX crosses – GBP AUD, GBP NZD and GPB USD, but he doesn’t trade these very often, whereas most days there are several index trades.

The first 1 – 2 hours of the trading day for both Europe and US, so around 2 – 4 hours / day.

The definition of a bear market is the same for SPYG and SPY, but the dates will be different as it is a different instrument. This SPYG high was on 27 December 2021 when it traded at $73.48, therefor the bear market started when it had dropped 20% to $58.78 which was on the 26th April 2022, quite a bit earlier that SPY. The low was on the 14th October at $49.14. The end of the bear market would be 20% above that, which is $58.97 which it hasn’t reached yet, so just like SPY it is still technically in a bear market.

The questions are coming thick and fast, so apologies if your question hasn’t been answered. I tried to deal with the more time-dependent ones first, and I will aim to amalgamate some of the outstanding ones and address them next time. Many apologies!

What 2022 Felt Like

Heather Cullen Blog SPY Titanic

I particularly enjoyed a reader’s take on 2022 – thank you  Ron! That’s definitely what it felt like, not a fun year.

And a joke:

Q: How do you make $1 million on the stock market?

A. Start with $2 million!

Thank you Kevin. Ayone else? All jokes gratefull received!

ITMeter

Heather Cullen In The Money Blog ITMeter

Well, ITM is still bullish, but a bit worried – see the discussion of consolidation, and support / resistance above, and watch for a breakout.

Stock Market Holiday

Just a reminder that the U.S. market is closed for the Washington’s Birthday holiday today.

 

Feedback on ITM Blog

I notice that the blog posts are becoming longer and more time-consuming, and looking for feedback about them (be kind, though!) I know how many people open the emails (practically every one that is sent out – amazing) and I can see the number of people on the website (more than the number of people who get emails) and notice how it peaks around the time of the blog posts.

However, I wonder if they are too long? Not interesting enough? Something you would prefer to be covered? Something that I can leave out? Please let me know in the comments, or through the contact form, I would really appreciate some feedback.

OK, let’s hope for a good week!

Heather

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