Into a Bear Market

Heather Cullen

Heather Cullen

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In The Money

Heather Cullen In The Money Blog Bear Market Smiling

Into the Bear Market

Finally, we got into a bear trade! After watching the market fall for most of this year, it breached the bear threshold of $382 on 13 June, dropping to close at $375. If we had been following ITMB then we would have got into our bear trade the next day, as all three bear trade criteria had been met.

In The Money Bear Market Signal

So how is it going? The market is still having conniptions, bouncing up and down like a crazy thing. Last Friday it gapped up on open, then continued with a long green Marubozu (remember them?) and closed up 3.2% at $390 – well above bear territory. Is that a signal to get out? No, because the MACD histogram is still negative, although it has been closing in on the zero middle line.

Monday's Market Open

This blog should have been posted yesterday, but all my software was complaining about the internet connection. I was in a mountainous region (more below), so it was probably to be expected. I decided to wait until today to try to post and that has probably been a good thing as I could see market open today as I am writing this.

Currently, half an hour after market open, SPY is down over 0.5%. Not hugely significant after all the volatility we have been experiencing, but enough to signal that Friday’s close may have been a trifle optimistic. On the other hand, I have often noted that the first half hour of trading does not necessarily indicate the way it is going to trade for the rest of the day as there is often a change of direction around that time.

Stay in or Get Out?

ITMB says that we wait for the ITMB OUT signal, that the MACD histogram is positive and above 0.5. After Friday’s close this looked like it might happen today, but as of now is looking less likely. All we can do it wait and watch, then take action.

Why all the Volatility?

The possibility that the Fed’s tightening (in response to the inflation figures) might trigger a recession is the main factor being blamed. There is also a contagion factor, with the crypto falls, with bitcoin down more than 50% this year alone. Look at the chart for the last 5 years:

ITM Bitcoin Chart

Bitcoin and other cryptos always make me think of Tulip Mania way back in 1636. Bitcoin was predicated on the fact that there was a limited supply of bitcoins. What wasn’t factored in was that in practice there could be an unlimited supply of crypto currencies. As of March this year there were over 18,000. Not very limited!

What does this have to do with SPY? Contagion. Many of the people who have been burned by crypto’s fall will also be in the market, triggering selling to cover losses, which in turn triggers more selling and prices dropping.

I got a lot out of this book: Extraordinary Popular Delusions and the Madness of Crowds which covers economic bubbles (as well as witches and ghosts!). You realise that people over the centuries haven’t changed. (Disclosure: I get around 2.7 cents from Amazon if anyone buys this book – so you see I am just recommending it and not motivated by the money!)

What Next?

Vigilance. Watch for the ITMB OUT signal and exit your bear trade if and when it happens. Until then, grit your teeth and sit tight!

But Some Things DO Change.

Having been in Switzerland  for some days, I am amazed at how much it has changed in the few years since I was last here for more than a couple of days. It has always been relatively expensive, but in the past I have been impressed by how everything worked beautifully and efficiently. Not anymore. Things seem to be very disorganized, and no-one seems to care about it.

An outsider’s view I know!

However, their scenery is second to none. Here’s a view from the restaurant at the top of First, near Grindelwald, one of my favorite places. Absolutely beautiful!

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