Is It A Bull Trap?

Heather Cullen

Heather Cullen

Author
In The Money

Heather Cullen Bull Trap

Caught in a bull trap?

--- and 2 day's later update! --

Oh, for the days when I was complaining that the market was boring! This one keeps throwing up surprises and not usually very nice ones.

We got back into the market after the SPY golden cross and it looked as though the worst was behind us. But were we premature? Have we been caught in a bull trap?

SPY 19 Mar Heather Cullen

Just to remind you what a bull trap is:

Bull Trap Bear Trap ITM Heather Cullen In The Money

So what does this mean for us? Again, waiting for the market to decide what it is doing. Either the SMAs are going to bounce off each other, or they are going to cross. If they cross remember to wait for confirmation (white space) and if it isn’t clear then wait a day of two for it to be clear. Sometimes they bumble along together for a few days before we get a definitive sign. I will post here if and when I think that we have received a definitive signal.

And it is 2 days later . . .

I have just sent out an email (as that was what most of the replies preferred.) Hope it didn’t spam you.

The death cross had happened, but it was not  in my opinion at least, conclusive. I suggested in the email that you wait for confirmation in the next day or two. As we have an unusual situation with bank failures and bailouts it might be best to wait a couple of days until the dust settles.

As of now, SPX is trading at 3,987, up 0.9%. If it keeps on like this then the death cross will not be confirmed. Will the market continue up? I have no idea, I am just saying that I (personally) am waiting for a clearer signal, and that you may want to do the same. Remember, I am not a financial adviser, just someone who trades.

ITM has been backtested on following the ITM rules implicitly, although we noted in the Bear Market book that in Dec 2018 all the indications were that we should not do the trade, but we did it anyway because those were the rules – and it was not a good trade. We would have been better to wait a couple of days until things settled down. I am suggesting that there may be a similar situation right now and that we should hold off for a day or two until things become clearer.

And on a lighter note, tonight a reader sent me the following quote:

If you can keep your head when all about you are losing theirs, it’s just possible you haven’t grasped the situation.

It gave me a laugh. Thank you, John, you may very well be right! Just doing my best!

h

Silicon Valley Bank

The big news that is putting markets on edge is, of course, the failure of SVB (Silicon Valley Bank) and SBNY (Signature Bank), plus the bail out of First Republic (FRC). The worry is that there will be contagion and that other banks will be affected. As always, I check out what I read in the news to see what the real story is – well, a bit more real than is being presented to us.

One of the things that seemed strange to me was that people were saying that it was a surprise – which it may have been, but only to anyone who hadn’t looked at their stock charts. Here is the chart comparing the 2 biggest US banks, JPM and BAC as the blue lines, and SIVB, FRC and SBNY as the red/pink lines.

The big banks went down in line with the bear market, but it is clear that the 3 red lines went down a lot more have been underperforming woefully since the middle of last year. So, not really that much of a surprise.

I have been reviewing why they failed and it would take up too much space to explain, but in a nutshell, my impression is that it was a mixture of incompetence and executives pushing their own pet agendas. Incompetence as demonstrated here:

Heather Cullen SVB bonds

Which it did. And as well, executives were pushing their own pet agendas. If you want to see what I mean, google the videos Signature execs made of themselves:

And, of course, the $5 Billion SVB committed to ‘sustainable finance’. Obviously, it wasn’t all that sustainable.

Heather Cullen SVB sustainable finance

I don’t want to get political here, but could the problem be that they had forgotten why they were there and that they were not acting in the best interests of their customers and shareholders?

When Do Bear Markets End?

I had an excellent question from Charity about the end of the SPYG bear market, which I though that I would reproduce here with a chart to explain it (something I can’t do in the comments).

Technically, bear markets end when they rise 20% from their low, but of course the problem is that we don’t know what was the real low until afterwards. So considering SPYG:

The high was $73.48 on the 27th December 2021, so the bear threshold is $58.78. SPYG first went into bear territory in April 2022, then came out briefly in August (but no golden cross so no ITM trade triggered) and has been below it ever since.

This is where it gets confusing w.r.t. definitions. There was a low point on 16th June of $50.47, which means that to get out of bear territory it would have to climb above $60.56 – which it did for 5 days in August 2022, However, then it promptly went back into bear territory and made a new low of $49.14 on the 14th October 2022. As that is the lowest point to date it has to climb above $58.97 which it has not done yet.
As I said, the definitions can get confusing, as you could argue that we have actually had 2 bear markets in SPYG (one from Dec 21 – Aug 22 then the other from Aug 22 and continuing to date) but I think it makes more sense to combine them into one longer bear market. It depends on whether you want to take the definitions to the letter or use some discretion.

Heather Cullen SPYG bear market

Practically, with SPYG it does not matter too much as we don’t have a bear strategy for SPYG, only for SPY. Doing a bear strategy on SPYG has not been tested (only the bull strategy). I could backtest and look for a strategy that would work, but quite frankly I am backtested out right now! Maybe in the future.

Heather Cullen Blog Baby bear

Daytrading Experiment.

Well, it’s not going very well at all. I don’t think I am suited to day trading. I get too excited and jump in and out of trades.

Thursday was ridiculous! I dropped $900 within 30 minutes as the market was dropping and I was trying to catch a falling knife (not clever) then got my revenge hat on and was determined that the market would give me back my money. It did a bit – but when I checked my trading activity the next day, I had traded 76 times in the space of 2 hours! Crazy. Yes, I know. Everything I say not to do. Not smart. Guilty. Absolutely.

So, I am back within cooee (as we say in Aus) of my starting point, but have lost all my profits. Twice I have been up near $6K, and twice I have given it back to the markets. I need to give myself a severe talking to. And I had one of the very few margin calls I have ever had . . . .

Margin Calls

Just in case you don’t know what they look like, here is what I received:

Heather Cullen Margin call 1

Not very friendly, is it? And here is the follow up 1 minute later:

Heather Cullen Margin Call 2

I didn’t actually notice them until the next day, but as I said I was in and out of trades very quickly so it didn’t really matter. The margins are based on the level of the index you are trading, so you need a much smaller margin on, say, the FTSE (7,312) than the DOW (31,853).

So, where to from here? I am determined to master this thing and get a working system, but my limit is this account. If I blow it up then the experiment is over. I’ve made myself two new aphorisms:

The goal is to make money, not to do the perfect trade.

And another one:

It’s not that you can wait for the perfect wave. You have to ride the waves that are there.

Very philosophical, don’t you think? Let me know!

New ITM Bull Book Update

It is now live, in eBook, paperback and hardback. I believe that you can get the eBook update for free if you call customer service – but please don’t quote me on that, and please don’t ask me to help. I have exactly the same access to support as you do, and they will not talk to me about anyone else’s account.

If you did manage to be successful and get a free update could you leave a comment here and tell people how you did it?

ITMeter

Heather Cullen the Bearometer

Reader Q&A

I think that this blog post has gone on long enough, and we have covered some of the questions above, so I will hold all the rest of the questions over until next blog update.

Heather Cullen Bull sticking out tongue

What next?

Watching and waiting (boring, I know). Looking for either the death cross or the pulling apart of the SMAs. If it wasn’t for the bank situation I woul be optomistic, but not sure how this will play out.  I will post here if we get a definite signal. And, finally, some wise words from Templeton:  

Bull markets are born in pessimism

Grow in Skepticism,

Mature on optimism

Die in Euphoria

Well, we are definitely not in optimism or euphoria!

Heather

3 thoughts on “Is It A Bull Trap?”

  1. Please, please check out SPLG as a replacement for a low cost S&P500 fund for ITMS. It has the same basis as SPY and a comparison chart shows that it overlays exactly. The same signals apply as SPY, albeit at a lower price level. In other words, a “back tested signal in SPY” will occur at the same time as a signal in SPLG. SPLG has the same disadvantage as SPYG in that LEAPs are not available.

  2. I have a Kindle Unlimited account and the 2023 updated book is there now.
    2023 EDITION In The Money: Bull Market Strategy

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