6 down days in a row!
All in all, it was a pretty horrible week. All those red candles! Not conducive to one’s equilibrium. I wondered – like you, I am sure – what it meant and how often it happened.
The answer is:
not very often at all.
Only twice in the past 5 years, and that’s including the Covid bear and the Biden bear.
December 2018 was the worst recent streak – 10 down days in a row during a drop of 20%.
However, it was back at its highs within 4 months although it took 6 months to make new highs.
What happens after a losing streak?
The next question of course is: what happened after a losing streak? But before we get into that, let’s think about what actually happened. NVIDIA was the big news last week – the market dropped probably in anticipation of bad results. The NVDA results came out – they were fantastic. So, the market rose, right?
Wrong, it plummeted a bit more. Sometimes you wonder what it takes to make the market happy.
Then it rose strongly on Friday in response to no good news. Go figure. Let’s examine similar falls in the past. We’re looking for:
6 Red Candles (consecutive)
Almost a year ago, last April (2024) we had a nasty drop which included 6 red candles in a row. Things looked pretty dire (and from memory I had quite a few emails saying ‘you should have got out at the top in March!!’)
In fact, I started the 22 April blog with the headline: Losing Streak: 6 Down Days.
I have just read it again; it has most of the things I was planning to write today so I’ll give you the link: Losing Streak. All I have to add to it is that it was interesting that even then NVIDIA was having a huge effect on market sentiment (‘NVIDIA Plummets’ – sound familiar?)
How did the last 2 losing streaks end up?
In April 2024, the last red candle market the bottom of the downturn, and after a couple of weeks of hesitation SPY started climbing again, exceeding its previous high in March by mid-May.
The next to last one, in September 2022 is not. I think, directly comparable as it was in the last throes of the Biden bear. Yes, it marked the bottom of the bear market (not exactly – there were a few days when it closed lower but not by much) and then started climbing. It didn’t break the downtrend for another 4 months and didn’t reach its all-time high made at the start of 2022 until 2 years later.
I don’t think this downturn is as relevant to us, as it was at the end of a bear market, whereas we have been in a bull market for over a year now.
I think the discussion in this post Losing Streaks covers the situation the best so I recmmend that you have a look at that.
REMEMBER
Bulls climb the stairs
Bears jump out the window.
In other words, bull markets tend to be slow and relatively tidy affairs, whereas bear markets are sudden and unpredictable.
To the markets
Well, a very nasty week. I have avoided logging into my accounts. I can work out in my head pretty well exactly where they are, and I don’t need to make myself miserable by actually looking at them. I don’t want those numbers seared on my brain and influencing my decisions.
Afraid to look at reality? Not exactly, although I can see that it looks that way. As I said, I know what the positions are, how much the totals will be, and that nothing has happened to trigger any action.
So, I just look on it as keeping above the turmoil and concentrate on what is important – which is life, not trading. Trading is just a means to an end. (But a very enjoyable one. Most of the time).
SPY Charts
Last week we were marveling at how accurately SPY had dropped to the green support level. It must have heard us, because just to show off it dropped to almost exactly the next support level (which, incidentally, I put on the chart 6 months ago. I just checked back on the blog posts to make sure I was not claiming anything that wasn’t true – they are all there, feel free to check.)
We can see that SPY has been in a sideways trading channel sideways channel (or Darvas box, if you prefer) for 4 months now. It has been rather a bumpy ride and I, for one, am getting a bit fed up with it. Time it decided what it is doing!
The 200 day SMA is still moving up steadily, and is now a tad over 570, and the 10 SMA is around 600, so there’s probably not going to be a death cross in the very near future (as in this week) unless something really disastrous happens. I really shouldn’t say things like that – SPY could be listening!
The long term chart is a bit worrying – it looks as though SPY has pierced the bottom of its trading channel (that’s what sideways trading can do for you).
I have drawn in the sideways channel (the magenta dashed lines) that is more appropriate for the last few months. I notice that the bottom is 580 and the 200 SMA could be there in a week or two, so it is possible there will be a death cross in a few weeks’ time. Alternatively, it could correct and continue the uptrend. I don’t know which it is going to choose – and neither does anyone else, although there are plenty on the financial websites who tell you they know exactly what it is going to do!
SPYG Charts
SPYG is not as clear-cut as SPY. It has most definitely dropped out of its trading channel (and Darvas box) and has gone lower than its low of early January. The 200 SMA is now at 83.5 just below the low point of last week and the 10 SMA is 89.5, so while it is unlikely that we are going to see a death cross this week we may in the next few weeks.
Unlike SPY, the long term chart shows that SPYG is still in its trading channel, although it is right on the bottom bound, and any further sideways or downward trading will drop it right out. Also, unlike SPY, it has not really established a sideways trading channel.
QQQ Charts
Look where QQQ is – it dropped almost exactly to 500, the previous high made in October (and before that July). Like SPY it has been trading in a sideways channel for 4 months now – boring!!
But look at the huge red candle on Thursday, after the great NVDA results.
Goodness knows what would have happened if they had been bad results!
This market is definitely skittish. But remember, we are trading the tide, not the waves.
Its not good news on the weekly chart: QQQ has dropped right out of its trading channel. It hasn’t yet established a sideways channel so we will just have to wait and see.
You may think that things have been too good for too long, and you may be right. But bull markets tend to last much longer than bear markets and can go on for years.
Remember the point I made in Reading Stock Charts that the ‘correct’ way to draw in a trend or support line depended on your time frame.
In previous weeks we were timing the uptrend from our golden cross entry in November 2023.
If we zoom out and start it at the end of the bear market in January 2023 you can see that the uptrend is intact (the purple dashed line).
VIX Charts (Volatility)
The VIX is having a little flirtation with higher volatility, and popped over the low-volatility threshold of 20
ITMeter
The week ahead
No earnings reports – thank goodness, one less thing the market can have conniptions over. But this week it is all about tariffs. The Mexico and Canada ones are scheduled to start on Tuesday, but we don’t yet know the level. There’s supposed to be an additional 10% on China. Which means that everyone is fretting about inflation and interest rates, clutching their pearls about practically everything.
The futures
The futures are pretty neutral right now, but it is 11 hours to market open so not really indicative. Although I did notice last week that the futures were often very positive, only to be slapped down when the market opened.
Here’s what I hope for the weeks ahead:
Fingers crossed for a good week!
Heather
Trade the tide, not the waves!
Q & A
Got a question? Ask it below and I will answer it within a day or so.
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