Losing Streak

Heather Cullen

Heather Cullen

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In The Money

Heather Cullen In The Money Blog Losing Streak

6 Down Days!

Last week was truly awful. We’ve now had 6 down days in a row, which got me wondering – how often does this happen? What (if anything) does it mean? So I  downloaded SPY data yet again from Yahoo Finance (I think I must be their most frequent customer!) and got to work.

Is it a record?

Its unusual, but not a record. Between 1 Jan 2000 and today there have been 28 runs of 6 or more losing days – roughly around 1 per year. There have been no runs of more than 10 losing days.

Specifically, the breakdown is:

  > 18 runs of 6 losing days

  > 5 runs of 7 losing days

  > 2 runs of 8 losing days

  > 1 runs of 9 losing days

  > 2 runs of 10 losing days

But when did these losing streaks happen? What was the market doing? What happened afterwards?

Here they are on the chart.

Heather Cullen In The Money Blog Losing Streak

SPY Chart with 6+ Down Days

Heather Cullen In The Money Blog Losing Streak

To me, it looks as though they are not particularly significant in forecasting whether the market is going to go up or not. They seem just as likely to herald a rise as a fall.

What can we glean from this? Only the stats: it is unusual and after a 6 day losing streak there is a 64% chance of the next day being an up day, and a 36% chance of being a down day. (I think that’s right – conditional probability is often counter intuitive, like the man who always carried a bomb when he went on a plane trip because the chances of getting on a plane with TWO bombs was incredibly low)

The Market is Skittish

Over the last week the S&P dropped 3.5% and the Nasdaq 6.1%. There’s no doubt about it, this market is jumpy. Talk about jumping at shadows!  It is the opposite of euphoria where it ignores bad news and keeps rising.

Remember – the bull takes the stairs, the bear jumps out of the window!

Heather Cullen In The Money Blog Losing Streak

NVIDIA Plummets

NVIDIA dropped 10% on Friday for no reason that I can discern. There were no announcements, the explanation given was that people were taking profits ahead of its earnings, although the earnings date is 22nd May this seems a bit tenuous. There are earnings this week from big tech companies: TSLA, META, MSFT, GOOGL so be prepared for more volatility.

Here’s the NVDA daily chart showing the huge red candle on Fridays.

Heather Cullen In The Money Blog Losing Streak

But keeping it in perspective:

Heather Cullen In The Money Blog Losing Streak

To the markets . . .

Horrible charts all round. This is one of the nastiest dips we’ve seen in a long time. The market has dropped a bit over 5% so it is definitely a dip, but not a correction (-10%) and some way from a bear market (-20%).

SPY Chart

SPY has dropped right out of its trading channel – it seems like a fond memory now. The 10 SMA is heading south although the 200 SMA will continue to rise for a while (why? Because 200 days ago it was trading at $420 and these are the values that will be getting dropped off) .

In previous blog posts I said that I was expecting a retest of the 500 level (although I hoped it wouldn’t happen) and now it has not only been tested but found wanting! SPY closed below it on Friday at 495. I suggested the 500 level as I was surprised when it didn’t provide any resistance even though it was a ‘psychological’ level, and thought it would come back and test it. Well, it has with a vengeance.

The next support level is at $477, the high SPY reached in January 2022, and which provided a bit of resistance in January 2024. On the weekly chart we can see that it has broken the uptrend and is heading towards support / resistance at 477.

SPYG Chart

SPYG has not only dropped out of its trading range but also out of its Darvas box. Not a good sign. The next support level is around 63. It provided resistance in July – September  and November – December last year, and then support in January this year. If it reaches it, SPYG will be well into correction territory as it would be a drop of 14%. Possibly its current level may prove to be support, but it is only on minimal evidence.

Heather Cullen In The Money Blog Losing Streak

And on the weekly chart we see that it has quite markedly rejected higher prices and bounced off the resistance. I could now take the question mark off the chart. Sometimes I hate being right.

Heather Cullen In The Money Blog Losing Streak

QQQ Chart

QQQ had a truly horrible week, and for no particular reason. It is now more than 7% down from its recent high, most of that (6%0 happening in the last week. It’s trading channel is now a distant memory, and the Darvas box where is had languished for almost 2 months was spectacularly broken this week. The next recent support level is around $390 which is 13% below its high and well into correction level.

Heather Cullen In The Money Blog Losing Streak

On the weekly chart you can see that it is heading for the support resistance line at the December 2021 high, and closing in fast. This is just over 400, and will be a drop of around 9%, not quite at correction level.

VIX Chart

Unsurprisingly the VIX has popped up sharply, and seems to be headed out of the low volatility range (below 20)

Heather Cullen In The Money Blog Losing Streak

ITMeter

I should explain why I chose this: I am bullish in the long term, but can’t rule out some more pain in the short term.

Heather Cullen Blog ITMeter

The week ahead . .

Well, I hope that it is better than last week. The futures are showing a small rise, but that doesn’t really mean anything at this stage. 

Heather Cullen In The Money Blog Losing Streak

Every night last week I checked the futures just before market open, and they were up, sometimes significantly. I went to bed happy, thinking it was going to be a good night, only to wake to a rather nasty surprise in the morning.

I can do without weeks like last week! Let’s hope this week is better.

Fingers crossed.

 

Heather

Questions & Answers

6 thoughts on “Losing Streak”

  1. Heather great rewrite of the 2024 books. This is now my 4th time of reading.
    In the Bull Market Strategy in chapter 10 you talk of supercharging by placing a small bet (I don’t know what else to call it) on an OTM option. I would like to know if you have a strategy for exiting such a play. Do you have a predetermined profit target? Do you sell or roll with 30 days to expiration and just take the profit or loss whatever it is at that time? I would be interested in your thoughts on this since you have so much options experience. Obviously I assume you would sell if a Death Cross happened as this is a Bull strategy.
    Appreciate your response, thanks Dave

    1. HI Dave!
      Yes, I flutter with OTM options, but only with a small proportion of the account. to take your questions:
      1. Predetermined profit target? no, while it looks (from the chart) as though it is going to keep going up I stay in it.
      2. Sell / roll 30 days to expiry? Yes, always. OTM means you have all time value, so you don’t want to be holding it while it is decaying. Roll out to a linger expiry dat if you want to stay in the trade.
      3. 30 days – take profit or loss? Yes, unless it isn’t worth it because the options isn’t worht any significant amount (it happens) – in which case I let it ride just in case it decides to have a Lazarus experience.
      4. Sell at death cross? Absolutely. Usually before. I am quicker t dump OTM options, always based on the chart. If it looks ominous, or even if it is approaching a resistance level I get out.
      Hope this covers your questions – if not please get back to me.
      And I’m not telling you how to trade – just saying what I do! I must say I do rather love having a flutter, but it is always on SPY, SPYG, QQQ – I don’t do stocks – unless I am doing a strangle / straddlem on a stock that is coming up to earnings. But that’s another story!
      h

  2. Hi Heather, I am happy to say I just placed my first two option orders following the DITM strategy you outlined for the SPYG etf in your book. I am starting from a smaller account so hopefully I can get up to where I need to be to do the full ITM strategy soon. I was wondering if you could tell me if there are any certain rules for when you take profits with a call option. I know we need to be aware of the death cross and sell prior to 30 days to expire, but is there a scenario when the option is up so much that you should sell to lock in profits? thank you!

    1. Hi Thad
      the only reason that I ever sell is:
      1. less than 30 days to expriy in which case I roll.
      2. It has gone up so that the strike is now too deep in the money (say, 40% if you are doing the 1% time / 50% strike) in which case I roll to a higher strike.
      3. there’s a death cross, in which case I sell and don’t get back in until there is a golden cross.
      Hope all goes well – I see that Meta has dropped hugely in the futures, so we may be in for a bumpy ride – but I hope not.
      Hope this helps,
      h

  3. Do you place trades regularly or just infrequently ? Because I didn’t get in one of your trades a long time ago and in your post you refer to it ofter. I’m interested in getting into a trade are you waiting for a setup to happen? I been hoping you see one and suggest a trade setup but it never seems to happen. Can you touch on this thanks.

    1. HI Jason, I don’t have a signal to start a trade other than the 10 / 200 golden cross, which happened on early November and is still in force – meaning I am still in the trade.
      I understand that not everyone gets in right at the start, but I don’t have any other signals that I use. Right now there has been a dip so it looks like it might be a good time to get in – as long as the market keeps going up, which, of course, we don’t know.
      My practice is to get in at the cross, and add to positions as I roll up if it is still a golden cross. If I miss the golden cross (which I dont because I am watching for it!) then I would still get in if it was in force.
      Hope this helps.
      h

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Heather Cullen

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