What a crazy week!
It started with an attempted assassination and ended with a global IT meltdown. Who could have predicted them both happening in the same week?
Did it have an effect on the market?
Oh yes. The market got hammered. Badly. Firstly, it was all stocks, then later in the week the tech stocks got smashed even more.
Tech Stocks
As you would imagine after an outage of such proportions faith in big tech was severely shaken. The Nasdaq dropped like a stone.
I wasn’t that surprised; I have been expecting it. Let me explain.
I started out as an IBM systems engineer in the days of the mainframe (yes, I am that old!) and then it was possible, indeed mandatory, to know all layers of software and hardware. In the years since, I have watched in amazement at how sophisticated computers have become, with so many different layers no-one could possibly know them all and I marvel that any of it works at all.
Complex IT Systems
I had a baptism of fire 10 years ago, when my partner died suddenly. I was then solely responsible for a business with a sophisticated bespoke system with 10s of thousands of users and I knew very little of the backend. After a very steep learning curve I realised how fragile everything was – an update in one piece of software could be incompatible with another, and the whole system could fall over.
Trying to fix it was fraught: eeryone pointed to someone else saying it was their fault, leaving it to me, the bunny of last resort. I lived in a state of abject terror for the next 3 years, always convinced that tomorrow was going to be the day when it would fall over and I wouldn’t be able to fix it, and have customers and users baying for my blood.
Burglar Alarms
I believe most people buy security systems after they have been burgled, which, of course, is the wrong way round. I suspect that this tech meltdown will have a similar effect; companies will start to look at the robustness of their systems, procedures and suppliers. One thing is sure: we won’t be going back to NOT using computers. The world just wouldn’t function. It’s simply not an option.
To the markets . .
So, let’s look at what effect these events have had. I have to say upfront that I really don’t want another week like last week!
SPY Charts
Sometimes I hate being right. Last week I wrote:
SPY broke through what I thought may have been resistance at $550 and is trading over it. I expect it will get tested as a support level this week – watch to see whether it holds or gives way. Holding will be a bullish sign.
Well, well, well – look what happened. Right down to $550 as predicted. Will it hold or not? We’ll find out this week.
Uncanny, isn’t it? But it’s not witchcraft, just observing what market usually does and assuming that the odds are with it doing the same again.
On the weekly chart you can see it falling towards the trend line, but it is still intact.
SPYG Charts
The SPYG is showing a steeper drop than SPY because of the greater percentage of tech stocks. It still hasn’t reached support, let’s hope it doesn’t feel the need to!
And on the weekly chart the uptrend is still holding.
QQQ Charts
It’s not pretty. After encountering resistance at 500 (as expected) it dropped. Last week I said:
It (QQQ) is approaching 500 – a momentous figure, so I expect it to bounce off it before finally making through.
Again, not prescience just observing what markets generally do.
Unfortunately, support at $486 did not hold, and it dropped right through. Now it is approaching the next support level at $474, so we should be watching. If it bounces, then we are watching a bear trap; if it drops through then the next probable support level is $460.
On the weekly chart the uptrend is still intact – in fact it must drop a fair bit before it actually touches it.
VIX Chart (Volatility)
The VIX has popped up, as expected. Amazing how regular these blips are, don’t you think?
ITMeter
The week ahead . .
I am writing this on Saturday, as tomorrow I will be on a boat on the way to Stromboli, and on Monday another boat going to other Aeolian islands.
Anything could happen in the next 2 days! Aliens may land, a meteor may strike New York and – here’s funny: I got interrupted just now and lost my train of thought, forgetting the third thing I was going to write. So, I asked AI for 3 unlikely events that could happen in the next week. Here they are:
Too funny! I had already written the first 2 already, and the third had just actually happened!! Spooky.
The 4 big news stories
OK, I will go out on a limb here. How are markets going to react?
The IT meltdown seems to have been controlled – at least, it is off the front pages. The assassination attempt news is now mostly about the security failures. There is a sense of predictability about the Fed interest rates (down) and the election outcome (Trump 2.0).
The SCOTUS Chevron defence ruling is significant: Courts must now interpret ambiguous statutes independently before deferring to agency interpretations. This will lead to a more business-friendly environment. Lastly, earnings; the earning season is upon us, and we can watch it real time.
There is reason to think that things will quieten down and the markets will continue up – but that’s a probability, not a prediction. We will see.
Sicilian musings
Well, I went up Etna as far as possible (3,000m) and unfortunately it behaved itself. No eruptions. Just some grumblings and steam. Hopefully I will have more luck with Stromboli.
But, the most amazing thing: everything above 2,000m is volcanic ash. No vegetation, just a wasteland of black scree. And the at 3,000 m I see this: alive and well and thriving! Who knew that butterflies could travel so high and in such inhospitable environment.
Evidently it is a Papilio machaon, the Old World Swallowtail, and was much brighter than the images online.
Why am I showing this? Just to show that unexpectedly beautiful things sometimes just happen when you least expect it!
Futures
No futures this week as I will be swanning around on a boat. Sorry.
Fingers crossed for a good week!
Heather
22 Responses
Good morning, Heather!
Quick question regarding the 10/200 indicators and charts. Are you looking at this on a daily chart over a one year period?
Thanks!
HI Eric I use the daily chart, but the period I look at it over varies – I reduce its Y axis to 3-4 years to get a longer term feel, and 3-4 months to rally look at the individual candles.
The charts are all on the website, here’s the link: https://heathercullen.com/stock-charts/
Hope this helps
h
Sorry… One more question that I forgot to ask. Have you ever backtested a strategy of just trading the SPY ETY (not the options) where you use the enter/exit signals to make the ETF trades instead of the option trades? Since you point out that the exit signals preclude big losses in your option strategy, I suspect it might do the same for a straightforward ETF strategy.
Jeff
Hi Jeff. I think she is likely without internet for a few more days, so this is my best answer for you. She wrote about exactly that (trading just the SPY ETF) in her book, “Timing The Market”. I have that one too. It’s a short book, one in her “One Hour Expert” series. Was worth the few extra dollars and hour or two read for me. She already covered the topic well in her ITM Bull Market book, but I liked the review. And her ITM strategy has made my retirement portfolio a much higher return than I had ever done for myself before, so I also thought of that purchase as a small donation. Anyway, you can also find the results of the backtest she did with just the SPY ETF here: heathercullen[dot]com[slash]backtesting. It is the medium-blue button on the right just under the bold words “Backtesting Timing The Market (SPY)”. It’s a PDF download. Kind regards and best of luck!
Hi Rodney – yes, I have had flaky internet connections, even my phone hotspot has found it difficult to cope with rural Sicily!
And yes, you are right, and have answered for me – thank you!!
x
h
hi again!
Yes , in the book ‘Timing the Market’ I trade straight SPY, not options.
Yes it wins nicely against buy-and-hold, but without leverage the results are not as good as ITM.
hope this helps.
h
Hi Heather I’m 95% done with the “In the Money – Bull Market” book. I like it a lot. I worked for years as a software engineer at a proprietary options trading firm. You do a great job of explaining a fairly difficult topic. In any case, I have a couple of questions about the ‘strategy’, Does a qualifying ‘cross’ require the .3% CLOSE above the moving average cross or just a .3% above trade? If the former (which I imagine it is), does your strategy make the option trade at the next day’s open. If so, what if at the next day open, SPY is no longer sufficiently above the cross? Also, there aren’t that many “Golden Crosses” and I suspect the next one will not occur for quite some time. Do you think it makes sense to enter the strategy now or would you recommend waiting until the next “Golden Cross”?
Jeff
Hi Jeff, I am not quite clear what you mean but let me try.
The cross, to be confirmed, has to actually cross and it is the difference between the two SMAs that determin the cross, not the actual price. Is that what you mean?
And if you have a confirmed cross, but on the next open when you are going to trade but find there has been a precipitous drop then there is no problem waiting a day or so until the picture becomes clear.
And, no, don’t wait for a ‘new’ golden cross – if one is in force then you can act on it – if you wait for a death cross so that the next golden cross is ‘new’ then you may be waiting for years! That has happened in the past.
Hope this answers your questions, if not please grt back to me.
h
Dear Heather, I have just been told about you and I have ordered your book. While I wait for the book to arrive, is there anything I can do to start my learning? I have been involved in Forex trading and have an Mt4 chart downloaded. I was wondering about SPY as I have never heard of it before, S&P yes, but not SPY. I am now 71yrs and look forward to creating an income from home, so from me it is a huge thank you for all the work you do. Yours, Adam
HI Adam
great that you have joined us – but what a time! There have been a couple of really nasty weeks!
While you are waiting for the book to arrive, I would get your account in order, and make sure it was enabled for options traiding, and become familiar with SPY / SPYG options chains – and QQQ if you are so inclined. Just check out the charts, hre’s the link: https://heathercullen.com/stock-charts/ and use your broker virtual trading to make sure that you are comfortable with the mechanics of buying and selling.
That way you will be able to hit the ground running!
Hope this helps.
h
Hi, I have completed reading your Bull ITM book. I’m trying to buy 1 Call option for which the effective price falls within less 1.01 x current SPY. But the most closest one is still 1.86% above current SPY. Can I proceed with this? Thank you
Hi – the Jan 17 2025 270 strike is 1.1% above so fits, the March 270 is 1.8% so has a fair bit of time value. If it were m I would go for the January one, knowing that I was going to have to roll by the end of November – and hopefully the market will have gone up by then so you would be wanting to roll up anyway.
Hope springs eternal!
Hope this helps.
h
Hi Heather!
If I were to switch up my strategy from SPYG to SPY, would a trader be wiser to start SPY in January to follow a 12-month calendar year and continue SPYG for another round (4-6 months); or does it not make a difference, meaning simply switching from SPYG to SPY now versus in January makes no difference?
Thanks for your thoughts on the matter. Hope all is well with you.
Hi Eli – it makes no difference. If you can do it now is probably a good time as SPY is down so much (but that is assuming it is going to climb again – which I think it will, bu who knows? Certainly not me!).
But I wouldn’t wrrry about looking at the calender for timing!
hope this helps
h
Dear Heather,
Thank you for your weekly blog. As always, I enjoy reading it very much. As of right now, President Biden has decided to step down. I am not sure how the stock market will react on Monday when it opens.
Sincerely,
George Halongton
Hey George – I saw this just after it happened, and said some very rude words. Not because I wanted him to stay on as POTUS but because it was going to throw everything into chaos. which it did.
Markts hate unpredictability, and thats what we have goot now.
Not happy.
This week has been awful! Hope tonight (Friday) makes up for it.
h
Enjoy the rest of your vacation. I hope you get to experience a great eruption.
Hi Jeff – well, eruptions all over the place – couldn’t even land on Stromboli island because of the eruption. But ostly smoke & ash – i’ve yet to see the spectacular pyrotechnics!
h
I remember big blue… The talking heads said the desktops would be the end of main frames… etc Big blue took it on the chin. And then went straight north. Who could forget that. Just when somebody was talking bad about Tesla she bottled rocketed right through the Naysayers!
R
Hi Randy – yes, Big Blue is still there, (and I was lucky enough to be there in its hayday) – amazing really.
I remember when teaching IT History the sixties were described as being dominated by IBM and the Bunch – let me see if I can remember: Burroughs , Univac, NCR, CDC and Honeywell. And guess who has survived?
Tesla? the rise between 2019 and 2022 was sweet, not been doing so well lately. And there will be volatility until after the election, as it depends very heavily on government policy.
But we’ll see.
I was reading something funny the other day and it referred to ‘the surprising longevity of LinkedIn’ which made me laugh out loud. I thought it was way bast its use-by date, but it is still hanging in there.
So who knows?
h
Right now, SPYG the minimums March strike is 71 whereas the minimum Dec strike is 35. Is it better to go longer term at less a minimum strike or shorter term at a deeper strike. My thought is it depends on your guesstimate what the stock market will do. {notinging both dates are after the election}
Hi Gary
I’ve just looked at the SPYG chain, and they have finally got the March 25 options up. About time!and the minimum strike is 50 – which is
a 62.5% strike, a bit above what has been tested, but good if you are feeling a bit aggressive. The 40 Dec strike is safer, just remember to roll in november.
Re the election – i’m going to do next week’s blog on that, if it doesn’t answer your questions then please get back to me.
hope this helps
h