Are we out of the woods yet?
It has been a more enjoyable week, especially on Tuesday when everything went up 1.5%. We are back over support, the 10 day SMA has turned north again, and we are well above any death cross, for the moment at least.
I breathed a sigh of relief, as I went out on a limb last week suggesting that we would go sideways a bit then head up again. Usually, when you make any sort of prediction the market does exactly the opposite – spanks you just to stop you getting uppity and thinking you know what it’s doing. I was apprehensive, thinking I was tempting fate. Luckily, it didn’t happen.
Where now?
I still expect a bit of sideways trading (consolidation) and note that we are not yet at the highs of January 2022 which is now 21 months ago! It has been a grueling 21 months, and a terrible time to have published a book. I notice that book sales correlate with what the market is doing. When the market goes up, the sales of all books go up. When the market goes down, all books go down. You would expect that a bear book would sell more when the market goes down, but it doesn’t seem to happen. I guess that people just don’t want to think about it the market when it is going badly.
When we approach the previous highs (for SPY around $480, for SPYG around $73) then I expect to see a fair bit of resistance before it breaks through. QQQ is closer to its previous highs and will probably meet resistance at $400.
This is just a guess, of course, no one knows for sure (it is hubris to think that you do) but I am guessing based on probabilities from what has happened before.
SPY Chart
The support line around $430 held, and we are now trading above support at $443. Whew! Plus we are back above the Uptrend line, only just but an encouraging sign. The 200 SMA hasn’t been affected and is still going up, and the 10 SMA has also turned back up.
The next thing to watch will be at the previous recent high at $457. I expect that we could see some resistance there – or I could be wrong, and it will just power through. That would be nice. Let’s hope I am wrong.
SPYG Chart
SPYG is following the same pattern as SPY, but with 2 differences:
(1) It is almost at the previous high in late July
(2) Its uptrend line is different. It was steeper, and SPYG is not yet trading over it.
I don’t think that these differences are very significant, so everything I have said about SPY holds for SPYG.
QQQ Chart
As usual, checking what is happening to QQQ is a good idea, although it has not been back tested for ITM. The uptrend line that started in January is intact (it wasn’t significantly broken, more of a bounce) and is approaching the highs of July this year.
It is also closing in on its previous high of $400 in December 2021, so it will be interesting to see if it meets resistance at this point. I will be watching with interest.
VIX Chart
Nothing significant here. It continues to go down, and is well in the low-volatility area.
A Shameless Request
If you liked my books, I would really appreciate a review on Amazon. It doesn’t have to be long: 2 – 3 lines is absolutely fine. And if you have already given one of my books a review, would you consider giving any others you have read a review also?
Let me explain why; if you don’t pay Amazon to advertise your books they disappear right down the rankings and then nobody can see them, which means no one can buy them. It is a significant amount – some months the advertising costs are more than half of the royalties!
The more reviews a book has the more likely it is that Amazon will display it, and hence I wouldn’t have to spend quite so much on Amazon Ads. If you could write a review I would be very grateful (only if you liked the book of course!) Here are the links:
Options Pricing
In the last blog we looked at why options were so expensive, and I commented that I certainly wasn’t an expert on it. Luckily, some of you were, and referred me to the effect of interest rates. You were quite correct! They had been so low for so long I had mentally discounted them – not a good move.
Some of you had some fantastic suggestions – including a strategy that involved buying just before market close and selling just after open. I haven’t yet checked it out, but I am going to.
If you are interested in options pricing and other factors rather than repeat it all in this blog I will refer you to the comments and answers in the previous post. Here’s the link: https://heathercullen.com/why-are-options-expensive/
Daytrading Experiment
Not enjoying this one little bit. My balance currently stands at $4,310 (I started at $5K). I must admit I have missed a few days, but I always check afterwards to see if I missed anything, and so far don’t seem to have missed a lot, but I obviously have if you look at his results.
He is very open with his results – after all he is trading live – here are his results for August:
Which are impressive – I certainly didn’t match them! I notice, on reviewing his previous results also, they are best on the DAX, so I am going to restrict myself to his DAX trades. Will keep you posted.
He is a high stakes trader (which I obviously cant emulate with a $5K account!) and his trading size is:
Dow Index = I risk £100 per Dow point movement. If I trade Dow with a 50 point stop loss, I am risking £5,000. If I make or lose 100 points, I have made or lost £10,000.
Nasdaq = £200 a point risk
FTSE Index = £300 a point risk
DAX Index = £200 a point risk
FOREX = £100 a point risk
ITMeter
The week ahead
It is a shortened week as NYSE is closed for Labor Day today, 4th September.
Lets hope that on Tuesday the bulls come back reinvigorated by their long weekend!
Heather
Top photo: Conner Baker at Unsplash
27 thoughts on “Out of the woods?”
Hi Heather,
I did a quick analysis on 3/3:30/4 pm prices on SPY compared to 10 am prices the next day on SPY on the last 25 trading days. I found that 14 days it was up, 8 days it was down and 3 days it was flat. The weekends seemed to be the same for me as the weekdays (3 yes, 1 no and 1 flat). Maybe it does better during certain periods.
Good morning Heather,
I left a review on Amazon about your books. Thank you for your wonderful books and your continued weekly insights about the stock markets and ITM bull and bear strategies. I learn a lots from reading them.
Sincerely,
George Halongton
George – I have just read it. Thank you so much!
It is wonderful to be appreciated, I am very grateful.
Sometimes I wonder why I do this, then I read a comment like yours and I know.
Thank you!
h
Good morning Heather,
As always thank you for your weekly update. Regarding the strategy of buying SPY call in the last few minutes of the trading day and selling the SPY call in the first few minutes of the next trading day, we can use $1k each week and use $200 each trading day for five trading days for a total of $1k. Spread it out evenly. Also we will have a higher chance of winning if we wait for the SPY to hit support levels to use this strategy.
Sincerely,
George Halongton in Los Angeles
Hey George!
I downloaded 1 year of SPY data to see the difference between the previous close and the next day open, was just going to analyse that, but got sidetracked. Hmmmm.
However, it will only give me the actual SPY prices, not the options pricing. Do you think that there is an option pricing advantage between the close and next day open?
h
Good morning Heather,
Yes, there is an option pricing advantage between the last few minutes and the first few minutes because there is pricing action between the 15.5 hours from 4pm to 9:30am New York Time after the stock market closes and before the stock market opens. Please see the link for more information although the article is eight years old. https://www.cnbc.com/amp/2015/10/14/want-to-beat-the-market-sell-at-10-am-play-golf.html
By the way, historically September is usually a bearish month along with February and May. Those are a few months we should keep in mind along with October when market crashes occurred.
Hi George – read the article, interesting, thank you!
I am afraid it isn’t for me – simply because of the time change of being in Australia. I am a bit of a night owl (which is good for the U.S. market open) and don’t operate well at 4AM (US market close).
But I am sure people based in the US will be interested – could you give an indication of what your results are and over what time period? Percentages, not actual dollars! That would be really interesting.
Thank you!
h
Can you please share with us what you found when you analyze the difference between the previous close and the next day open? I am very curious about this method also.
HI Charity
I did a quick analysis on data from 7th September 2022 to the 1st September 2023 (close and open next day) with the following results:
Total trading days: 249
Days Up: 118
Days down: 131
Average Gain days up: $2.09
Average loss days down: $1.92
Total gain / loss : $-4.83
If you want to check further here’s a link where you can download SPY historical data: https://finance.yahoo.com/quote/SPY/history/
If you do, please share your results here in the comments – would be appreciated!
h
Would you suggest a method for applying the EP + ?% rule to underlying’s other than SPY and GSPY (or QQQ and similar)? Thank you in advance for your help. I am now going over to Amazon to comment 10/10 on your books, ITM, Bear ITM, and Compare. all the best, Lowell Fink
The ITM strategy has only been backtested on SPY and SPYG, but not on QQQ. Having said that, I do use it on QQQ, and am planning to backtest it – but right now I haven’t
And thank you for taking to time to comment on Amazon, I really appreaciate it!
h
Given the small market depth of GSPY, do you continue viewing it as a workable underlying for ITM and Bear ITM strategies? I couldn’t make it work for me.
Market depth impacts the spread – few bids and asks usually means that the spread is large, which is obviously not good for traders.
With SPYG, although there is not a great market depth, the spread is relatively small. I’m looking at the March 2024 chain now, and the $35 strike has a spread of 2.5%. Thats wider than the SPY spread but using SPYG is a way that people with smaller accounts can get into the market. The end game is to get into SPY options.
Although the spread is 2.5% you may ge filled above that – see the question below from Kyaw. The NBBO mans that you get the best possible price from all the available exchanges, so the price that your broker is advertising may underestimate at what price the trade will go through.
Hope this helps.
h
You suggest limiting losses to 10%. Do you ever use stop losses? If so, what % for SPY and what % for GSPY?
Hi – I think that I may have been quoted out of context. I mentioned not to use more than 10% of your account on riskier strategies, like ATM or OTM options.
For ITM, the entry and exit points are the 10/200 golden cross and death cross, not a certain percentage.
Re stop losses – I don’t use them for ITM or other options trades – they always seem to get you out at the worst possible time. I use them if I am daytrading using CFDs – you have to there as you could end up losing your shirt if you don’t! I decide where my stop loss is going by looking at the chart and figuring out a place where the trade is obviously ‘wrong’ and putting the stop loss slightly below that.
Hope this helps.
h
From Lowell:
Your generous blog help with page references for refining my Excel “Cullen cheat sheet” has unexplainably disappeared from your platform, so could you please send me the page references again
Hi Lowell – it is still there, here’s the link: https://heathercullen.com/a-dismal-week/
I bought all 4 books and finished the first book bull market. There is one thing I want to know. Let’s say I had so DITM 2 long calls and they will expire in the next 1 month. And I want to sell it. What if no one buys my calls? I have the right to buy 200 shares of etf. But i don’t have enough money for 200.
Hi Kyaw
you will always be able to sell your calls – the market makers will buy them if no trader wants them – thats what the market makers do.
If you put your sell order in at the bid you will usually be filled above it, especially if your broker uses The National Best Bid and Offer (NBBO), which is a quote that reports the highest bid price and lowest ask (offered) price in a security, sourced from among all available exchanges or trading venues.
So with SPY you will always be able to sell your options, you won’t be stuck with them.
Hope this helps you sleep at night!
h
I read another book by Travis Wilker same technique with you. The only difference is he bought ATM. But I know DITM is better. In bear market, he bought Put ATM when death cross. What about your opinion rather than your bear market strategies?
HI – I have just googled ‘Travis Wilker’ and cant find any books he has written. He seems to be a film director?
OK, just seen that there is a Travis Wilkerson – is this who you mean? & the book is: Options Trading Made Simple: How to Buy Calls & Puts and Achieve Financial Freedom in Only 5 Years? the 2013 version?
h
Yeah that one! His book also gave historic data.
thank you – will have a look.
h
Heather- on the method of trading at the close of the day and again on the open,I have been doing this for a short time trading when earning reports come out selling iron condors.My returns have been +68%,+100%,-7,5% and +30%–overall up +48% for 4 trades over a 2 weeks time frame.Please feel free to email me if you are interested.
Thanks-
Steve
Hi Steve – always interested!
I used to be very into iron condors, not so much recently.
What stocks are you doing it on?
h
Find a site/broker that tells when stocks have their earnings reports.I like high priced stocks(>200) with narrow bid/ask spreads(high liquidity).Example–ADBE is announcing earnings after the bell on 9/14.I would place my trade in the last 15 minutes before the market closes on 9/14.On 9/15 ,I close the trade within the first 20 minutes or so. I am not a financial advisor;just a guy trying to stay a step ahead of the Street.Please learn how to trade iron condors and become comfortable with them before employing them.
Hi Steve
thank you for this – as I mentioned, I used to use iron condors a lot, but haven’t done so recently. I should probably do a section on them in the next blog post so that people know what we are talking about. If you could provide some examples of where they have worked for you that would be great.
Thank you!
h
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