The start of a new bull market?
ITM Special Update
We have had the signal – the 10/200 golden cross. It’s debatable whether there is enough whitespace between the SMAs (see the arrow) but there is definitely some. If you want to wait a day or so to make sure that it has really crossed then that is fine – bull markets move much slower than bear markets.
What options?
With SPY trading at $400.35, if we are looking at 50% leverage then we should be looking at strikes around $200 (isn’t it good to have nice round numbers for a change?). To meet the 1% effective price rule we need to have the strike + premium = $404, so let’s check the options chains.
If you are looking at January 2024 expiry, then here is the bid/ask:
The midpoint is $205.41 which is close, or you could go for a September expiry which has a midpoint of exactly $204.
SPYG Smaller Accounts
Of course, this is over the budget for many smaller accounts, so let’s check out SPYG. As I mentioned in the last blog post SPYG is a different beast to SPY, and it is not at its golden cross yet. The ITMS strategy was backtested using the SPYG SMAs, not the SPY SMAs, so there is no golden cross there just yet.
Tonight
At the time of writing (10 hours to market open) the futures are slightly positive but nothing impressive.
Looking at the last 10 days on a 15 minute chart we see that yesterday opened low then climbed solidly all day – a good sign. But you can see that it has several times bounced off the 400 mark where it is sitting now. Resistance. Will it do it again? I don’t know, we will have to wait and see.
Well, lets hope that it is the start of a new bull market, not a bull trap. After the last year we deserve some good times!
Heather
4 Responses
Heather,
First of all great book – thanks for writing it.
My 2 cents, this is an artificial inflation of SPY at this time – it really doesn’t add up to see this rise. I don’t see strong positive market sentiment so I’m standing by and watching.
Hey Patrick – nice to hear from you, and thank you for your kind words. Standing back and watching is the thing to do if you are not sure. Re market sentiment – I just go with what is on the charts, I let the market tell me what is happening. I just have to stop telling it what it should be doing and watch what it is actually doing! So whle it has the IN signal I will be in and as soon as there is an out signal I will be out!
Heather-
I was wondering about the 200 strike you highlighted which is at 50% of the current price. In the book you back-tested the options at 60% of the current price (and suggested 50% as the more conservative option) but you didn’t mention the 60% strike in your post. Was it because the premium is too high?
Thanks
HI Jorg
no, it was because the effective price was too high. It was more than the recommended 1%. The figures have changed since yesterday, but you will see what I mean. SPY is currently $404.75, and so 1% above it is $409 (rounded). If we get the 200 strike then the bid/ask is 208/211 which falls within the bounds. If we get the 60% strike, $245, then the bid/ask is 166/169 which is an effective price of $413 which is not within the bounds. Of course, you can choose the 245 strike, just be aware that if exercised today you would be paying $412 for something that is trading at $405. It is unfortunate that option prices re so high right now, but there we have it. Hope this helps. h