Is It a Bull Market Yet?

Heather Cullen

Heather Cullen

In The Money

Green Candlesticks . .

There are lots of green candlesticks, but what we would all love to know is has the bull market started again? But of course no-one knows. All we can do is guess, and hopefully make intelligent guesses based on what has happened before.

Like me, I am sure you are fed up sitting on your hands. But is it time to get back into a bull trade? Let’s look at the chart:

In The Money Blog Heather Cullen SPY Chart SMA

We can see that the 10 day SMA is converging on the 200 day SMA and it is possible that it could cross this week, if the market keeps on rising like it has done in the last 2 weeks. But is this likely?

In the 2 weeks to 25 March, SPY rose 7.7%. That is huge. Can the market sustain such a rise? Hard to say, so let’s look at some history and indicators.

Is it unprecedented?

No. Here are the 4 largest daily increases in the S&P 500 over the last 22 years (source: Wikipedia):

These are huge, but you can see from the dates that the first 2 were in the Covid bear, and the last 2 were in the GFC. So far in 2022, we have been nowhere near a bear market so it is probably not useful to view them as having a bearing on the current market. (yes, terrible pun, couldn’t help it!)

What do the indicators say?

I have included 2 in the chart above. The first is volume, and we can see that in the last week there was only one day with above average volume. That speaks to a lack of conviction on the part of the bulls. But there is another indicator that I sometimes look at: On Balance Volume, or OBV. It is the green line in the chart below.

In The Money BLOG Heather Cullen SPY OBV

OBV measures buying and selling pressure by adding volume on up days and subtracting on down days. The actual value of OBV doesn’t matter it is the direction. You can see that the current slide started in December and appears to have bottomed in March. But is that enough?

Looking at the futures for 28th March, which are currently down 0.28% but are ticking up, we have no real indication there either. So lets look at the MACD.

The MACD histogram flipped to positive on the 16 March and has stayed there at a high level. However, the peak was on 22 March, and the 3 trading days since then have failed to make a new high. So no real clues here either.

So what do we do?

Sit on our hands until we get a clear signal from the SMA,  which may be this week. If we were following the EMA then we would already have had it. Here’s the chart.

In The Money Blog Heather Cullen SPY EMA

You can see the EMA golden cross was confirmed on Thursday so if we were using ITM with the EMA we should have entered Friday. But we are waiting for the SMA as that is what most traders follow and act upon and what ITM has been backtested on. We can look at the EMA as giving us a ‘heads up’.

Another Opinion

I have mentioned the Calafia Beach Pundit before, and on a recent post he says:

We are still far from seeing conditions that would signal an imminent recession. Credit spreads are still relatively low, swap spreads are square in neutral territory, and the yield curve is still positively sloped. There is no sign that liquidity is in short supply—and that's all-important. This economy is not being starved of liquidity, so it's very unlikely to suffer a collapse.

That’s comforting!

Covered calls update

Well, my recent foray into covered calls went badly: I was exercised! Bah, humbug. Spanked by the market. Must learn that lesson. Boredom is the scourge of traders, particularly me.

Covid & me

I tested positive for Covid last week and so am in isolation. I feel a bit ordinary, although no worse than a not-particularly-bad flu. But I have let things slip on my schedule, and I need to get back in the driving seat – so I am sorry if some of you haven’t had replies, I will get onto them shortly.

In conclusion

Wait for the signal ( SMA 10/200 golden cross + white space between) and then act!

Heather Cullen In The Money Signature

Heather Cullen

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