The bear is back!
Yes, the bear is back, but its still a baby. And what a week! QQQ and SPYG are both in bear territory, and SPY isn’t far behind. I had meant to do this week’s blog on AI and the Hype Cycle, but in view of the crazy goings-on this week I have decided to shelf that and look at what is happening instead.
So far, it’s a baby bear
Baby bears can grow into big ones – but not always. There have been times, like December 2018, when QQQ briefly frolicked in bear territory then started to climb again. Here’s the chart, with volume and OBV:
Why did it fall? Several reasons, including:
- The Fed signaled plans for more rate hikes in 2019
- The U.S. – Chine trade war
- Concerns about a global slowdown
- Algorithmic and Technical selling
- Mixed corporate guidelines.
Sounds familiar, doesn’t it? If you look at the press today, you’ll see the same culprits being blamed. But what happened after? It went into a bull market, and didn’t stop until Covid in March 2020.
So that had a happy ending, but it doesn’t always. In the ITM Bear book you can see what happened in July 2008. SPY briefly dropped into a bear market, but popped up again just like above.
But it didn’t stay there very long.
In September 2008 it reentered a bear market and went down into the deepest bear market this century. Two similar scenarios – two very different results.
Is this relevant today?
There’s a saying attributed to Jesse Livermore (aka the great bear of Wall St and the Lone Wolf of Wall St)
I think he is absolutely right. Human nature – hope, greed, fear and especially herd behavior don’t change, and ergo the market repeats the same patterns.
Now I am not saying that this is definitely going to repeat this time. I am merely pointing out that entering a bear market does not mean that we are going to have a full-blown bear. We have to watch and wait – and analyze what is actually happening (through the charts) not be swayed by opinions and take sides. Which brings me to:
The Main Stream Media
Last week I warned about taking it too seriously and advised to read it with a critical eye. I would like to clarify what I meant. I was not saying that the data they give you is wrong; I don’t mean you should disbelieve the figures. They are accurate almost all the time, and can, in any case, be easily checked. It is the opinion and the slant we need to be wary of.
There are sins of omission as well as those of commission – sometimes what they leave out is more important than what they leave in.
But back to us: the first question is:
How unusual is this?
The last 2 days have been epic (opinion). The QQQ has lost 11.2% and the SPY 10.4% (fact).
How often does this happen? Have there been a worse 2 days? I thought that I would outsource the calcs to ChatGPT:
Then we had a fight about who would do it (he wanted ME to do it following his steps; I wanted HIM to do it following my steps) so after my getting bossy and telling him off, we got going with some clarification:
Well, he came back with the data after a ‘deep dive’ taking around 15 minutes – and his results were wrong!! So, I specified:
After him trying to get ME to do it a couple more times, I sent him off with a flea in his ear:
Finally, I got the confirmation that I needed: what we experienced this week is really out of the ordinary. In the last 25 years it has only happened 2 other times.
Don’t get me wrong, AI is brilliant. I rarely use google any more, it is so stuffed with ads and sponsored links you can never find what you are looking for. As for ‘questions other users ask’ – spare me! But ChatGPT is getting very lazy, and would rather tell YOU what to do rather than do it himself.
OK rant over! And the next question is:
What should we be trading?
Right now, nothing. SPY is not in a bear market, which is necessary for an ITM bear trade. The bear strategy has not been backtested for either QQQ or SPYG so I am not recommending any trades here either.
This doesn’t mean, of course, that you shouldn’t trade them; I am just saying that we don’t have the stats to estimate the likely outcome. Personally, I think the situation is so extreme that I want to wait until some dust settles; everyone now seems somewhat hysterical.
To the markets . . .
It is quite soothing being on the sidelines. I was watching the market at open on Friday, and was just looking, with amazement being my only emotion. Well, that and a bit of thankfulness that we were out.
I smiled wryly remembering my trepidation about getting out on the day after the death cross was confirmed. I was going to get out, but of course I didn’t want to get out at the low of the day, so I was prevaricating. Now it seems rather silly: worrying about getting out at $567.10 instead of $567.25 when it is now trading at $505.28!
SPY Charts
The chart this week is a bit busy as I’ve put on it the indicators that we should be watching to help us work out what is going on. You can see Thursday’s and Friday’s big red candles, both of them gapping down on high volume.
I’ve also put in the correction and bear thresholds. How funny, last week I was saying that we were some way away from a bear; now we are within cooee of it (is that an expression in the U.S.?)
Is this capitulation? Is everyone throwing in the towel? Possibly, we’ll have to see what happens next week.
On the longer term chart any thoughts we had about this being a minor downturn are dispelled. Look at that drop! We are almost back to where we were at the end of 2021.
It is practically the same as the Covid bear, and that was the most sudden and sharpest bear on record.
We are witnessing something quite spectacular that traders will probably talk about for years.
SPYG Charts
SPYG is just as nasty as SPY – worse, actually as it has gone right into bear territory. It has dropped 21.6% since its high in February. The day we got out it closed at $82.36 and we thought that was a bad loss – imagine if we had stayed in until today when it closed at $72.45. We would be kicking ourselves.
I feel so sorry for all the people who listen to their ‘financial advisers’ who recommend staying in the market through thick and thin – they must be feeling very let down tonight. Perhaps they are consoling themselves with ‘you haven’t lost until you sell’ – the most absurd piece of market ‘wisdom’.
On the long term chart you can see how freaky this drop is – there is nothing like it, even including the Covid bear. We’re back trading at the level we were in 2021 – will someone please tell these pundits who keep telling us the market is overpriced??
QQQ Charts
QQQ Is now in a bear market – and on high volume. Capitulation? Possibly. As always, we wont know definitively until afterwards.
On the long term chart we can see how devastating the current drop is – it makes the Covid bear look positively puny! Like SPYG we’re back (almost) at 2021 levels.
VIX Chart (Volatility)
Not surprisingly, the VIX is showing the highest reading since Covid.
ITMeter
It is still showing undecided – because I am. It seems just as likely that it will bounce and go up as go down. Glad I am / we are on the sidelines.
The week ahead. . .
Goodness, I don’t know what to expect. The optimist in me (which is probably around 90%) say’s ‘it’s an overreaction, it will bounce’. The pessimist in me (the 10% that I try to keep under control) is saying ‘We’re doomed!’
I imagine that things will settle somewhere in the middle.
Re the ITM strategy: I know that we didn’t get out at the top; neither will we get in at the bottom.
That’s not something that I can do – or that anyone can do, if we are honest.
Lots of people can do it in hindsight; it’s only when you are at the RHS of the chart it is difficult.
I am not doing the futures in this blog – because they are not open yet and I am gadding about again, going down south for a couple of nights. I hope the weather is better than it was in Albany in March! I need to regroup and recalibrate, hence the early blog and email.
At the end of April I am leaving for France and I hope that the market has settled down by then. It seems to delight in having conniptions when I am away.
When I left last April it was having a big downturn, then while I was still away in July / August it had another meltdown. I came back in time for the nice rise September – December. The year before, 2023, had a March meltdown and wasn’t sorted before I left – then there was an August downturn that lasted until November. The year before that, 2022, we had the Biden bear – again, not a carefree holiday. 2021 would have been perfect – but Covid stopped me leaving Australia because there was a chance I wouldn’t get back in. And of course in 2020 covid was in full swing. 2019 was interesting – I had broken my ankle and as soon as I was out of a wheelchair I was on a plane to Europe and had a brilliant, if slightly limpy, holiday.
So – this year – I am back mid-August – wouldn’t it be nice if until then, the market behaved and just went up slowly but steadily? But when did the market ever do what you wanted?
Some thoughts:
“The stock market is designed to transfer money from the Active to the Patient.”
— Warren Buffett
“The market is designed to fool most of the people, most of the time.”
— Jesse Livermore
“The purpose of the stock market is to make as many men as possible look like fools.”
Anonymous
AUD / USD.
And just for fun: you know I am in Australia for 8 months of the year. Here’s the Australian dollar for the last 25 years, going from 50c to $1 and back again (almost).
We now have an election on May 3rd, and both parties are trying to emulate each other. Can’t see the trend changing any time soon. That’s why I don’t keep any money in Australia!
Fingers uncrossed – let’s just watch what happens.
Heather
48 Responses
10 april 25 / 11:48:00
MX5 – sweet
Seems like a tug of war between the bulls and the bears …
“ September 9th “ My thoughts?
You say “ Ocean “ i say an “ emotional rollercoaster “ driven by “ fear and greed “ and the chart confirms it… this daily chart of this dip is part of larger channel either trending higher or lower or even ranging.
flying the 172 Cessna next week and other things •
r
Hey! I learned to fly too – did the solos (in the cessna, naturally – but there was a very sweet little Robin that I loved) but thenmoved to Sydney so never completed my PPL.
I keep thinking I should go back and finish it – but never seem to get around to is!
Have fun – its wonderful up there.
x
h
Thanks much, Heather. Sorry for the confusion from my not being able to word my question better. Your answer is what I suspected but wasn’t sure.
Finished reading ITM Bear Market Strategy. There are some errors in it which confused me greatly until I figured them out. In Chapter 6 where the put option effective price is defined, you have some examples where you state that SPY was trading at $461.90 and then looked at put options at $700, $650, etc. The math does not work for that SPY price. It should have been $514.832. Then, on the next page you have a statement for a call example that says “The *highest* strike meeting this criterion is $220”. For calls, you should be looking for the *lowest* strike price that meets the criterion. You also have it reversed for the put example which follows.
HI Jim – you have picked up the same error that Robert did – I need to track it down and fix it.
thank you!
h
Hi Heather I appreciate your work and I enjoy your weekly blog. I’ve read your ITM book and I’m now reading the ITMB version (the timing is right!). I wanted to call your attention to the fact that in Chapter 6 Buying the Bear section, while discussing calculating effective prices of put options, on Page 110 it says that SPY is trading “today” at $514.81 but on page 111 it says that SPY is trading at $461.90. The subsequent calculations of effective price are based on the first quote, and it’s a little confusing until the difference is discovered. I thought you should know about it.
Hi Robert
Just looked at the sales figures – the bear book, Timing the Market and Options trading for Beginners are all outpacing the Bull book! Must be a sign of the times.
It looks as though I have made a mistake, let me go and figure is out – thank you!
h
part 2 or was it part 3… ( on my questions ) welcome back.
Back in 23 there was a pull back
( 07/25/23 – 10/27/23 ) pundits called it a 10% correction… Did you go to the sidelines after the death cross ?
r
ps ♂️what car should i buy now
HI Randy – sorry missed this.
Yes, just got back – Re Oct 2023 – there was a death cross confirmed on the 31st so we should have got out on the 1st November – only to get back in again on the 10ty November. A filaed death cross – but if you follow the system you follow the system. We would have sold when it was $422 and bought back at $440 – making a loss. But you can’t win all the time. Sometimes you just have to suck it up.
Cars? I have a cute little MX5 which I love – highly recommended!
h
Uh, “cooee” is not an expression used here in the U.S. I had to look it up on… yeah, I’ll admit it… Google. If cooee was used here in the states, I’d give a big cooee to draw attention to your ITM books. Thank you SO MUCH for writing them… and for this blog!
Hi Stephen – how kind of you!
Thank you!
h
I commented in last weeks blog about you are in the worthy footsteps of people like Dick Fabian, Norman Fosback and many others. One of my favorites is Shoal Berer, who nobody, but me, has ever heard of. You said you had never heard of them and so I thought I would make it easier on you to check them out. You might not find them on a Goggle search but you can find them on a book search. Dick Fabian wrote ” The Mutual Fund Wealth Builder”, years ago. Though not exactly doing what you do Norman G. Fosback wrote to me a very helpful book, called “Stock Market Logic”, though I found nothing logically about the Market most of the time. The last I mentioned was Shoal P. Berer who wrote a self published book, ostensibly for his Daughter, before he died at 93 called “Double Your Money Every Three Years Safely”. I almost did not buy the book because of the title but I am glad I did. I stole ideas from all three among others to do what I attempt to do. I added my own flavorings also.
They may not be for you but they are treasures for me. Reminiscences of a Stock Operator tops all but provides little in the way of methodology and Dick Fabian’s ideas and Methodology are the closest to yours. I don’t think his holds up as well as yours but your concepts are similar. Congratulation again for a knotch in your gun handle and thanks for your work.
Hey Tommy!
Yes, I found the book, it is not in kondle format otherwise I would have bought it. I have so many trading books around the place I have called a moratorium – which of course I have recently broken. I bought a hard copy of the life of Jesse Livermore, and it has a lot more about his development of trading strategies.
Not using options, and trading with enormous amounts of capital means that his methodology is not directly applicable to us, but I am hoping to refine his methods in a way that is. Well, I’ll try anyway.
Maybe you could give us a precis of his main points? I asked ChatGPT, but it told me to go and read the book – whereas when I asked it about the books by Heather Cullen it was much more fulsome!
h
I read every book about or by Livermore but my impression is he always traded with his gut. If he had inviable math based rules, even simple moving Average rules, he would not have had booms and busts or been influence by others. In one episode he kept buying a Commodity that about wiped him out because he allowed another person to influence him. It would drop and he would buy more and it would drop and he would buy more based on the advice and influence of an expert on the Commodity against his first and foremost principal. That principal was never add to a position that does not show profit at the beginning. I can’t remember but I think the Character in the book was Percy somebody and the Commodity was Cotton? Maybe? I will have to look it up.
I was fortunate to live in a town where a Friend, Ed Dobson ran a outfit, Traders Press in Greenville, SC USA, that sold Trading books to people all over the world. So I know about having too many Trading Books.
Hi Tommy – the one I am reading now says that he legged into trades 20% – 20% – 20% – 20% – 20% on different criteria. I need to finish the book to check what other rules he had. Once I have done that I will report it in the blog.
h
Really appreciate the ITM and ITMB strategies and this blog. However, one thing that is a bit confusing to me is that you recommend SPYG as a “getting started” instrument for those which do not have sufficient capital for SPY, yet you also admit (which I appreciate) that it has not been backtested. How can you recommend something which has not been proven? Not trying to be critical, it just seems inconsistent. At the very least the book narrative should be updated – i.e. “SPYG is un-backtested – use at your own risk and it is not a recommendation!”. Oh, and BTW, the tariffs are not causing the dropping markets, human emotions are! Thank you.
HI Brad – SPYG HAS been tested on the bull strategy, and is meant to be a stepping stone up for people with smaller accounts, eventually graduating to SPY.
I’m not sure why you think it hasn’t been tested? I wouldn’t recommend anythiong that hasn’t.
What SPYG has NOT been tested on is the bear strategy, and I don’t really want to test and reconmend on that – mainly because if you have a smaller account your main objective should be protecting your capital and SPYG being more volatile (and the options comparatively more expensive) I wouldn’t recommend it. Just hold tight for the next bull.
Having said that I haven’t looked at e-minis for a while so I need to check that out, it may be an alternative.
h
SPYG currently has no Puts that have 1% or less time value, so it doesn’t meet the ITMB criterion to buy anyway. QQQ has many though, that come in at 0.46%, so it meets ITMB buy criterion.
I made a nice spreadsheet that you can put in bull and bear criterion and option premiums to see if they meet the criterion. There are separate sheets for SPY, SPYG, and QQQ. I would post it here if there was a way to do that, but maybe most have their own spreadsheet anyway.
Can you share the link to your sheets? I will like to try out.
HI Tejas
it is easy to recreate it for yourself – here is the link: https://heathercullen.com/backtesting/
then choose ‘Download ITM Backtesting Documentation.
That gives step by step instructions how to do it.
h
Heather, my spreadsheet is not for backtesting. It is for determining whether a trade meets the ITM or ITMB criterion for buying or selling the options. You enter the option price(s), what time factor you want, recent high value (so it can determine whether it is a Bear market (current values are already there), and current MACD. The spreadsheet has a link to the latest (but delayed) prices of the stock. It will show you the minimum strike price you want for put options or the maximum for call options.
Hi Jimbert (? or Jim?)
I think you are probably making it more complicated than it needs to be. And eyeball of the chart will tell you whether a golden cross has happened, and that sometimes only happens every year or more. Then you need to look at the option chain – I can’t think of any way you could get a feed of that, other than subscribing to something like OptionGear – which I do, and that costs $50 per month. They have all sorts of options filters etc, but I find I rarely use them – ITM is so simple it doesn’t really need anything other than a quick calculation in your head and a glance at the option chain.
This probably isn’t the answer you want, but if you want to try an automated system here’s a link to Options Gear: http://www.optiongear.com/
Hope that helps
h
The only way I know of to share it is through Dropbox, but I need your email address to share it with you. If you’re willing to give me your email address, I will share it with you (or anyone that sends me their email address).
Hi – thank you – – my email address is info@heathercullen.com.
h
Hi Heather,
In anticipation of a plunge into a full-on bear market I took a look at the ITMB put options for the SPY market that closed at about 505 on 04/04. Starting at 680 strike (35% above current) for September 19, 2025 the effective price seems to be equal to the current price, and the same seems true at 690, 720, and up to 780 so far—so I’m confused. Am I doing something wrong, or does this have something to do with the state of the market?
HI Robert – let me have a look, I aven’t been checking on put prices.
Wow, you are right! Crazy market. Here are the figures I am seeing for Sep 2025 expiry:
current Strike ASK actual
504.38 600 93.94 506.06
504.38 610 103.96 506.04
504.38 620 113.96 506.04
504.38 630 123.96 506.04
So if we take the $600 strike, then the intrinsic value is $95.62 ($600 – $504.38) – and you pay only $93.94 so you are $1.68 ITM.
Which is good – but the practicalities are a bit of a problem.
To exercise you actually have to oown 100 shares of SPY (as in you can’t sell anything that you don’t own) and in this fast moving market by the time you have bought them and then exercised SPY may be trading at quite a different level.
However, here are the steps if you want to try:
1. buy the put option
2. buy 100 SPY at market
3. Exercise the put to sell the shares at the strike price.
It might be fun – but I think while prices are fluctuating this rapidly it may be a bit reisky.
Hope this helps – and good luck, tell us how you go!
h
Hi Heather,
I’m a little confused, not an infrequent occurrence.
For Bear Markets, we have the following situations:
A. Get IN signals
B. Get OUT signal
C. Get BACK IN signals
Let’s say we are where we are right now, not in the market, the latest signals having gotten us out of a Bull Market but not yet in a Bear Market.
So, hypothetically, soon we get the Get In a Bear Market signals and buy our SPY puts.
Then things turn up so we get the Get Out of a Bear Market signal and sell our SPY puts.
Then it all turns down again and we get the Get BACK IN a Bear Market signals so we by SPY puts again.
Then another OUT signal so we sell again.
When do we cycle back to the 3-criteria original A. Get IN signals versus the 4-criteria C. Get BACK IN signals?
HI Jay,
I read your question and had to go and get a cup of coffee!
Ok, back again, let me try to answer.
Firstly, the bear signals is mutually exclusive with the bull signal. We can’t get both at the same time. We should be well out of the bull market before the bear market starts an it is one of the bear trade criteria.
So: once we have the bear signal, we use A, B and C as you list, and keep doing it until we don’t have another ‘Get Back In’ signal. The we stay on the sidelines until we get the 10/200 golden cross, the we get back into a bull trade.
Hope this makes sense – if not, please get back to me.
h
Do you plan to backtest the ITMB strategy on the SPYG anytime in the near future?
Newbie
HI Jon
I am hesitant to recommend it on SPYG as it doesn’t go back quite so far as SPY and is not so heavily traded, so I fear that any back testing would not be as valid as SPY which has vastly more data.
I have not tested it on QQQ either, but in any case QQQ options are not much cheaper than SPY.
I am going to check out the E-mini options on SPY to see if that is viable as they are one tenth the cost of SPY.
Will update the blog when I’ve analysed it.
h
“now we are within cooee of it (is that an expression in the U.S.?)”… can’t say I’ve ever heard that one in the U.S. Can you translate?
Thank you for continuing to blog. I know you considered giving it up about 8 months ago. I enjoy your style.
Hi Thor,
yes I was considering giving it up – but had so many lovely emails asking me not to I thought I would keep it going for a while – and here we are!
And ‘within cooee’ – in the outback the distances are huge, and the traditional call to find anyone is ‘cooee’ – it travels a long way. So if you are ‘within cooee’ you are (relatively) close!
h
Dear Heather,
Thank you for everything that you do for the ITM Community, much appreciated. I am thinking of Jesse Livermore as the trader and what kind of lifestyle that would lead him
to commit suicide at the end of his life? Perhaps his life is more heroic than the writer Ernest Hemingway? Sorry for my digression. I look forward to reading your weekly blog and also your sharing of your traveling for the next four months. As for me, living in Los Angles, I am thinking of visiting South Africa this year.
Sincerely,
George Henry
HI George – thank you – and I am reading a biography of Livermore at the moment – what a life!
Complete melodrama – unbelievable riches, then rock bottom, again and again, and his private life included his wife shooting his (and her) son. The photo taken the day before he died – he looks so sad.
I’v been in SA a couple of times but not recently – I’m sure you will love it, the light is so beautiful.
h
Thanks Heather – you’re the best! I wait for your level set analysis at the end of the week! . The TV and internet pundits create a tangled and exhausting mess of viewpoints. A week ago, the CNBC buy the dip crew are telling us about their latest “buys” and we proceed to get this meltdown. Crazy!
Hi Blake
yes, if you listen to the media all you get is confusion.
Especially the ‘buy the dip’ people who were crowing ‘Buy buy buy’ when SPY& was $560. We don’t hear much from them now it has dropped to $504 – but that won’t stop them giving us advice, unfortunately.
And thank you for your kind words.
h
WOW! amazing commentary! Useful and thoughtful! I always look forward to your columns.
Thank you Heather!
Andrew
HI Andrew – thank you!
I just wish I had a nice steady bull market to talk about.
h
Now that we’re in bear territory what’s the criteria for entering a put trade? What would make you extremely bearish …
r
HI Randy – we are not in bearish territory just yet – we opened on the bear threshold (Monday) but closed above it.
If you are following the ITM strategy then our signal is a close below the bear.
h
Congratulations, you read the market correctly! I hope this event doesn’t cause many to never re-enter the market.
Hi Jeanette!
Yes, it is comforting being on the sidelines when the rest of the world is going crazy.
I’m just watching and waiting – not sure what ill happen in the short term, but optomistic for the longer term.
h
Hi Heather,
Should we enter the market with the ITMB strategy as soon as SPY hits a 20% drop from its all-time high (assuming the other criteria are met)? What if it hits a 20% drop in the intraday, but by the end of the day, it is no longer a 20% drop, but a 19% drop, for example?
Thank you for consistently posting blogs; I look forward to reading them weekly. I am a 20-year-old investor, and your blog, ITM, and ITMB strategy make me feel very optimistic about my financial future!
Hi Nick – great that you are starting so early! I wish that I had too!
I am wary about making any call on the market right now – everything is quite hysterical and jumping about.
Long term I am optimistic, but unlike other bears this is sudden and in response to events, not in response to the economy.
IN any case, we haven’t yet closed below the bear threshold so we are not triggered just yet.
Re Intraday – all the backtesting has been done on closing prices, so that is what we are looking for.
Hope this helps
h
When looking at the current drop and comparing it to the covid bear, you really should be using a log scale for the chart. Although this drop looks worse than the decline in 2020, in percentage terms it is still less (so far 18%) than the Covid drop (more than 30%).
Still no ITM followers are complaining about being out of the market.
Thanks for sharing your great, well-tested system with your readers. You’ve done us all a great service.
Hi Al
You are right, I should have used a log scale if I was comparing the whole drop – but I was just looking at individual days and nothing in the Covid bear martched the two days (Thu and Fri) from last week.
I agree I should have been clearer.
h
Thanks Heather for your excellent analysis and commentary. I’m hoping we have capitulation: high volume, VIX, 10% below 10 week moving average. Should know early this coming week!
HI Michael – just got back and downloaded the data for MOnday – what a crazy chart! opened right on the bear threshold, did you notice? and on high volume.
Tuesday should be interesting!
h