Market Peaks.
Naturally, we all want to get out at the top of the market peak, but as we know, they don’t ring a bell at the top. Or the bottom for that matter.
We discussed Prospect Theory a couple of weeks ago, noting that people become fearful when they are in a winning position (afraid that they will lose the profits they have made) and become hopeful in losing positions (hoping that the market will rise again, and they can make up their losses.)
Is it reasonable to expect to be able to recognise a market peak? Let’s look at the chart of the Dow going right back to 1915. Yes, more than a hundred years. What is your first reaction?
Is it panic? Sell now!! It can’t keep going up, can it? We must be in for a crash! Probably they were saying that in 1999 when the chart looked like this:
And they were right; the next 2 years looked like this:
Yes, a bear market. Technically there were 2 bears, but we usually count them as one big bear, and it dropped around 32%. What can we take from this? If we see a ‘hockey stick’ graph we know trouble lies ahead? The bear is coming? Not always. Here’s what it looked like in 1997:
Yes, another ‘hockey stick’. Is a bear coming? Here’s the next 2 years:
The Dow almost doubled! Who would have thought? Let’s delve a little deeper.
The first graph at the top of the page was from 1915 to now. In 1915 the Dow was around 70; now it is around 40,000. A 100% increase in 1924 when the Dow was around 100 would have been 100 which would barely register on the graph because of the scale. Today a 100% increase would be 40k, and that would definitely register! Same % increase, different result on the graph.
This is because we are on a standard graph. The axis does not take into account the level of the market at different levels Which is why we use log scales when comparing historically. Here is the same data on a log scale:
The uptrend looks nice and steady, with the exception of the big bull market of the 1920s where the market increased six-fold, followed by the crash of 1929. That’s the big blimp on the left side of the chart. Since then, the increase looks pretty steady. In fact it looks as though it is becoming less volatile. Is this correct? Yes, I think so. Here is a graph of the percentage increases and decreases over the last 110 years:
Because this graph is in percentage terms the years are directly comparable, and it looks to me as though the amplitude of the swings is getting smaller (except for the year of the GFC).
But what about today? Well, here’s the Dow daily for last 10 years on a non-log scale:
And on a log scale
Neither look particularly scary to me. But then as Baruch said:
If you want to play with the charts yourself here is the link: Historical Charts – Hours of fun!
Half Price Days
The Bull and the Bear books are half price this weekend, and until Tuesday. I have never discounted before, but I would really like readers to get copies of the updated versions. The basic strategies are the same, but I have rewritten them to take into account what has happened over the last three years. I don’t know about you, but I find eBooks with charts a bit hard to follow, and prefer the print version – but it is up to you.
If you already have an eBook then you could contact Amazon and see if they will give you the update free, but in case they don’t I have reduced the eBook to half price also.
(The images are linked to the Amazon page)
And, if you like the books, I would really appreciate a review on Amazon – on any of the books. A few lines is fine – it doesn’t have to be long.
The number of reviews helps reduce what I have to pay Amazon to display the books – if you don’t pay for Amazon Ads your books mysteriously disappear, but the more reviews I have the more likely they are not to do this.
Here are the links:
and a nice reader alerted mE to the fact that these had disappeared! Probably my fault, but to reach them just click on the book links above, and scrill down to reviews!
THANK YOU!! X H
To the markets
Thursday was a bit of a shock. When I went to bed (I’m in Australia) the market was up nicely and I was expecting a nice surprise on waking. Well, I got my surprise, but it wasn’t very nice! Friday was a nice up day, but as we know a 1.4% drop is not made up by a 1.4% rise.
Tech stocks, after a lovely rise, have stopped for a breather; some market pundits are saying that it is because AI is not turning out to be the game changer that everyone thought. Is that correct? Personally, I don’t think so; I think it is going to revolutionize many industries and make many jobs obsolete. Already I use it for coding things, it takes all the fiddly syntax problems and fixes them.
Whether the tech companies will make money out of it is an entirely different matter. Governments are getting on the case, and could hamstring them for many years, so whether a revolutionary technology makes the market boom is not quite so clear.
OK, staying off politics, let’s look at the charts.
SPY Charts
SPY dropped out of its trading channel on Thursday, on the big down day, then clawed back in on Friday. Thursday was a monster red candle; the biggest we have had for months. (And I’ve had an idea for next week’s blog: look at the implied volatility on a daily basis. Interesting? Maybe not, might be too heavy. Let me know what you think.)
And in perspective:
SPYG Chart
SPYG is definitely out of its trading channel now, and is going sideways in a period of consolidation. It has been there for around 2 months, and it is getting very boring writing this all the time!
In perspective, the chart makes more sense; it is encountering resistance at its previous high. Just as we had predicted months ago! Sometimes I hate being right, I would much rather it kept going up.
QQQ Chart
No surprises here; still in consolidation like SPYG. Like SPYG it is still in its Darvas box, but has dropped out of its trading channel.
And in perspective it looks as though it could possibly be forming a double top, which is generally not a good sign.
VIX Chart
The VIX has popped up sharply (due to Thursday’s big drop) but is still in historically low territory.
ITMeter
The week ahead . .
Earnings season starts again. This week it is mainly the big banks who will report on Friday. Then we have all the earnings games starting again: analyst’s forecasts, volatile stocks, the whole merry-go-round. Oh, well.
Right now, 12 hours to market open the futures look pretty neutral.
Fingers crossed for a good week!
Heather
Questions & Answers
Photo by Riddho Datta (and yes, I’ve been there – its Ama Dablam in the Himalayas)
22 Responses
I bought a few of your books a couple of weeks ago. I first read ITM Bull Market Strategies, actually twice now, so that I get it. Here’s my question and I can’t find it in the book. I understand the 10 day, 200 day SMA and the death cross and golden cross. What I can’t find and don’t really understand is the time parameters you use when looking at the chart. If you look at SPY for 3 months the 200 day is well below the 10. If you look at 1 month, it’s still below, but not as far down as the 3 months. When you look at 5 days, you see that the 10 day crossed the 200 day on 4/12/24. So, in theory the different in more than .3 but it could very well cross back up when the market opens tomorrow. So what time length do you set when looking for the crosses?
HI Alan, I am not sure that I really understand what you are saying.
I use the 10 day and 200 day SMA – if you are looking at it on a daily chart then it should not matter how many days you have on the screen.
If you look at the charts I post you will see that I usually include the last 5 months, simply because you can still see the individual candlesticks. If I extended the chart to one year then the candlesticks would be harder to read, but the SMAs would be in exactly the same place. If I put only 5 days on the screen it wouldn’t give us much contaxt, but again the SMAs would be in exactly the same position.
I feel that I am missting your point. Could you do another comment in the next blog explaining what you mean? And send a snapshot of the charts you are looking at to info@HeatherCullen.com?
Sorry can’t be more helpful.
h
In reading your book ITM Bull Market Strategies, you mention Yahoo as a good source of charts that would provide info on Death Cross and Golden Cross. (I also have bought Bear Market ITM) I checked and could not find it on Yahoo. Any suggetions?Thanks,
John
Hi John, here’s a link: https://finance.yahoo.com/chart/SPY
This takes you to the SPY chart. If you look in the top left corner you will see INDICATORS as a drop down menu. Choose MOVING AVERAGES. In the pop up window it will ask you for parameters, so put 2 on one a 10 day and one a 200 day. Also set the date range – I suggest 1 – 2 years, and choose candle from the drop down menu called LINE.
This willget you the kind of charts that you see in the book.
You find the golden cross when the 10 MA crosses the 200 MA going up, and the death cross when they cross the otehr way.
Hope this helps
h
Hi!
Quick note: The links to leaving a review are missing, at least at the time of this post. Jeff’s method does not work. My family are avid readers and I have auto-update enabled. Never works. Also the menu he references does not exist unless perhaps he has a Kindle Reader. Just FYI
HI Sherman
the reviews are at the bottom of the sales pages, you just have to scroll down – and I would really appreciate some reviews.
Re the auto-update on Amazon – I can’t help, I have never tried it.
Sorry – Amazon drives me nuts!!
h
AND SORRY SHERMAN – YOU WERE RIGHT!!
When I checked they weren’t their – probably something I did, so to leave a review just click on the book images and scroll down.
Tank you for letting me know!!
h
Dear Heather,
Congratulations with your new updated versions of your books. As always, I am grateful and thankful to your weekly blogs.
Sincerely,
George Halongton
Thank you so much George!!
It started out as a little task – but ended up taking 3 months! I always underestimate the time taken to do anything. Glad its finally finished – can start planning my Greek / Italian summer now!
h
Hi Heather,
Last week I contacted Amazon customer service. The agent told me that in order to get new Kindle for iOS versions of your Bull & Bear books, he had to leave a note for the content development team and it should be taken care of within a couple of days. As you can guess, it was not.
I have absolutely no issue in paying for your updated books. Unfortunately, I cannot get the Kindle 2024 versions. I just purchased both your printed Bull & Bear 2024 books — your valuable advice is well worth the price of the books!
Up to you, but it may be easier for all of us to not release your updated books as just an update …
HI Brent – thank you – but good news about the kindle updates – if you see Jeff’s comment below he has the procedure you need to do to get the updates.
Hope this helps!
h
This is from the amazon support forum:
To receive the most updated version available for your Kindle books including corrections and improvements.
Go to Manage Your Content and Devices.
Search for your Kindle book.
If available, select Update Available, then select Update.
Tip: To receive automatic book updates as they become available from the publisher or author, enable Automatic Book Update on the Preferences tab in Manage Your Content and Devices.
Jeff – thank you so much – I will put that on next week’s blog and email. That is really good news!!
h
Hi Heather,
In your Bull book you reference using the MACD as well like the Bear strategy. In your opinion is it worth adding into the mix? Also, with your new backtesting system have you found anything else that you think is worth including ?
Thanks,
Paul Meadows
HI Paul, I think I have taken that reference out in the latest version – I kept getting asked about it. I have checked using the MACD alone, with various parameters, and did not get any good results. I have tried combining them with standard ITM and it doesn’t make that much difference, mainly because we are not frequent traders – from memory, in 30 years there were only 34 trades. So if we check the loss making trades, we have to work out which of them would have been ‘saved’ by adding in the MACD and s far I haven’t got a definitive answer – it keeps us out of some losing trades at the expense of keeping us out of the start of the winning trades – i.e. we loe part of the uptrend because we are waiting for confirmation.
So I guess, the answer is that at this stage I haven’t found the right combination!
Sorry!
h
Yeah, when I go to Amazon via your links and click on the Kindle version it says I already own it and no matter what I click on it won’t let me buy the US$4.95 version with “2024” on the cover.
Hi Jay – you will have to contact Amazon customer service (sorry) – but the good news is that if they know you have already purchased it they should give you the update free.
Sorry about the hassles – Amzon drives me nuts!!
h
Thanks for the reply, Heather, and sorry you have to put up with all the hassles at Amazon. Although all-in-all, I’m glad they are there, they definitely could be more user friendly, especially to authors.
Heather,
Looking forward to your new books but how do we buy them. The links go to the books published in 2021 according to the title date even though the cover picture says 2024 and because I already purchased them Amazon doesn’t give me a purchase button.
HI Brad – I’ve just looked on Amazon.com and both the bull and the bear seem to be the correct one – the inside ways copyright 2024.
Re Kindle – I don’t know exactly what you see as I am in Australia and it wont deliver to Australia, it just says that it is not available.
I am not sure what to do – could you contact Amazon custoemr service and ask them?
Sorry can’t be helpful, but Amazon doesn’t give me any special rights, I have the same service as everyone else, and they won’t discuss what anyone else has got.
But if you get back to me with more details I will try to get answers from KPD (the kindle publishing bit)
Sorry!
h
Here is what Amazon shows me when I select the link.
In The Money: The Simple Options Strategy That Always Beats The Market Hardcover – November 24, 2021
The cover is correct but the title shows 2021. Because I have already purchased it doesn’t recognize it as a new book and won’t show a purchase button but only a read now button. I can’t download to my Kindle.
Hope you are enjoying Australia.
Hey Brad – that refers to the date of first publication. If you check the copyright page it should say 2024 – that is the correct version.
I have just had a look and they all seem to be showing that at my end.
Can you check this?
h