Sleeping Bull?

Heather Cullen

Heather Cullen

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In The Money

Heather Cullen Blog Sleeping Bull

Is It A Sleeping Bull?

If we compare the SPY chart now and what was happening in February, we can’t help but be struck with the similarities. The market is in a consolidation phase (going sideways after a rise) at around the same price point and it has lasted almost the same time. Of course, it isn’t exact; nothing in the stock market is, but it is noticeable. Have a look at the chart and the two dotted boxes.

Heather Cullen Blog Sleeping Bull

In February it didn’t have a happy ending. It went south until it bounced off the bear market level then started to rise until stalling at the level of the previous high in February.

What does this mean for the future? I don’t know but my guess is that it will head up from here. Twice now it has rejected dropping back into a bear market (December and February) and so one could think that it really doesn’t want to go there. We are just entering earnings season (mid-April to early May) so that could be an explanation for the hiatus. You can be sure that a lot of people will be watching closely to see what we can learn from this.

Inflation & Interest Rates

The other thing that is in the news is, of course, inflation and the Fed rates. I am no economist, but it seems to me that inflation has peaked and is coming down. If you are interested, there is a lot of information on the U.S. Bureau of Labor Statistics.

Heather Cullen Blog INflation

To me it looks as though inflation is starting to come down, so the Fed rate hikes should slow, and this will give the market a boost. Maybe.

At the time of writing the futures for Monday 17th April are up, so let’s hope that that is a positive sign.

The Nasdaq

The Nasdaq ETF, QQQ, is showing a similar consolidation pattern to SPY. The bear exit level is proving to be quite a solid support line, and the level is above the February level. Like SPY, it feels as though it is going to go up. But notice the word ‘feels’. That is only a guess based on a gut feeling, I don’t know but then no-one does. I am just looking at the chart and basing my ideas on what has happened before in similar situations.

The VIX (Volatility Index)

The VIX (Volatility Index) continues to decline and is not at its lowest level since October 2021. Again, that should be good news for the market.

Heather Cullen Blog VIX

ITMeter

Heather Cullen In The Money Blog ITMeter

Book Review - Jack Bogle

I have been reading Jack Bogle’s The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books, Big Profits). Actually, that isn’t correct; I started to read it and quickly got very bored, so I got it on Audible and listened to it instead. If you put it on 1.5 speed, you get through it much faster and can get some exercise at the same time! 

I love the short summaries of books:
War and Peace:  Everyone is sad. It snows.
The Grapes of Wrath: Farming sucks. Road trip! Road trip sucks.
Don Quixote: Guy attacks windmills. Also, he’s mad.

So I’ll try to do one for Bogle’s book:

Commonsense Investing: Buy an Index Fund. Preferable mine.

OK, joking aside what does the book say? I was writing this and my eyes were glazing over with boredom at the thought of it, so I decided to ask Chat GPT. Hilariously, it was obviously as bored as I was:

Heather Cullen Blog Chat GPT

So I tried Bing, who was much more obliging:

Heather Cullen Blog Bing review

OK – here’s my take on it. If you want a book full of facts and figures to support not trusting Wall St fund managers, then this is the book for you. He goes through many statistics to support buying and holding a low cost index fund, and posits that over the last 100 years (the book was updated in 2017) staying in the stock market got the best returns. Naturally, you would expect that advice; Bogle started the first index fund, the Vanguard 500 Index Fund, in 1976.

His main 2 points are hard to argue against (apart from the holding forever bit):

  • Don’t trade stocks or mutual funds, choose an index fund and hold it forever,
  • Fees eat away at your money, so choose the lowest cost index fund you can find.

What he didn’t do was make a compelling case to stay in the market during downturns. He was continually repeating that the stock market gains 9.1% per year, but that is on average. But it is not like interest, you don’t get 9.1% every year. As for sitting tight during downturns? Can’t agree with that, which is why I published Market Timing : Debunking the Myth of Time in the Market.

Why Bogle thought ETFs were Bad

I had read that Bogle was very down on ETFs and this was why I wanted to read the entire book. Yes, he is very down on ETFs and is known for being against them, preferring traditional index funds. He is quite scathing of them, calling them ‘traders to the cause’. Here’s Bing again:

Reading his book, I discovered that his objections to ETFs were twofold:

  • ETFs encouraged people to trade rather than buy and hold. People were trading them like stocks, and jumping in and out instead of buying and holding forever.
  • The proliferation of ETFs. They were no longer tracking the whole market, but sections of the market, selections of stocks within the market, inverse funds and daytrading funds (2X and 3X)

On both of these points he is correct. The daily turnover is huge, fund managers are now selecting stocks to be in their ETF, and there are now almost 2,651 ETFs. The original conception was of an index fund, and clearly developments in the ETF market mean that it is now a long way from that conception.

However, the ITM strategy  does not fall under either of these objections: we are buying long dated options around a year to expiry, and we are using SPY which accounts for over 85% of the total market so therefor (as he admits) is an excellent proxy for the whole market.

Taxes

I have been criticized frequently for not thinking about the tax implications of the ITM strategy. Fair enough, I get that. But I don’t cover tax matters, because I am not any sort of expert on tax and frankly, it bores me to tears. I recommend that you consult a tax adviser if you need advice on how trading affects your tax liabilities.

However, in the context of Bogle’s book, he points out (correctly) that buying and selling can trigger a tax liability, hence you are better buying and holding because you don’t get taxed on unrealized assets. That is a fair point, and I can’t offer any advice on that because it apparently (according to the book) depends on what entity you are trading as. If you want to know more then I suggest that you read Bogle’s book.

ETFs other than SPY

I have had a lot of suggestions about what other ETFs we could trade as SPY is getting very expensive. I have backtested SPYG – the S&P 500 growth fund, and caution that has only 232 stocks so does not reflect the entire market. I recommended SPYG for anyone with a small account, but with the end goal of transitioning to SPY.

I need to do a fair bit of work to check all the suggestions I have been getting – and I will do it!

I have (against my better judgement!) joined Seeking Alpha as they seem to have a comprehensive screening system for ETFs so I will use that for research. I also have found a free site,  JustETF if you wish to do some research yourself.

Daytrading Experiment

Well, I never thought I would say it, but I am totally fed up looking at charts! It has become harder and harder at market open to whip myself into opening up all the charts (DAX, FTSE, Dow, SPX, Nasdaq) and comparing the 1 day / 1 hour / 15 minutes /10 minutes / 5 minutes / 2 minutes and 1 minute charts, and then jiggling between them.

I decided I had had enough and was only going to follow Tom Hougaard’s actual trades, even if I didn’t like them, but then he decided not to trade the week before easter and then the week after he was having a holiday. So not much of an update today. This is the first day back – I will follow and keep you posted.

Q & A

Will be back next blog. Sorry, but this post is long enough and I have covered quite a few of the questions in the text above.

Image By AI

I decided that you needed a respite from my photoshopping attempts  – its not my strong point! So I asked Open AI to make me an image for the blog. I have had some really funny ones in the past – here is it’s version of the five (!) Bennet sisters in Pride and Prejudice:

 It still makes me laugh. They look like zombies!

But today it came up trumps with a bull in a bed, so it must be improving.

Heather

8 thoughts on “Sleeping Bull?”

  1. I would like to have your new book, but it’s only on Kindle. (?)
    Do you sell them thru another outlet?
    Thanks. I really enjoy your blog.

    Buck Lester

    1. Hi Buck – i’ve just checked on amazon.com and it is available in kindle, harcover and paperback – i’ll post a screenshot at the bottom of this page. Not sure where you are looking? or atr you not in the US? Could you let me know? Thank you! h

  2. Thanks for the reply. It’s hard enough to avoid “analysis paralysis” in trading as it is. So my view is that one should take mechanical signals, knowing some will be profitable and some not. I’ve never read Lefeevre’s book but know it’s a classic. My understanding is that he’s more of a subjective, old-school trader than a long-term market timer. As such, I can see why he’s constantly trying to figure out the phase of the market–though it’s much easier said than done.

    I mentioned that book by Masonson because it has some mechanical marketing timing models. I read it years ago and haven’t forward tested them. However, they are the type of long-term models one could use with unleveraged (SPY) or leveraged (UPRO) ETFs along with deep-in-the money options.

    1. Hey Jeff (?) I definitely do mechanical signals – when ITM gives a clear signal I am in – I walk the talk! Likewise when there is an out signal I am out – no second guessing. But re LeFevre’s book – I just went looking for it in my library, and can’t find it – I have so many books! will look again tomorrow – but my memory is that he was totally dependent on the total direction of the market whether it was bullish or not. Some bits that spring to mind are that he didn’t trade for 1? 2? years because the market was not giving clear signals, and another bit about an old trader giving advice while rubbing his spectacles ‘well, its a bull market , isnt it?’.
      Possibly my memory is not accurate, I will find that damn book and check to see how good / bad my memory is.
      Re Leslie Masonson – I have found his books on Amazon, will buy and read, maybe review in the next blog! Unfortunately they are not on audible so that means I have to sit still and read it – but OK, will do it!

  3. Heather, I am very interested in your readings. some have taken me to investment corners that were unknown to me.

    1. Hey Kate! Nice to hear from you. I am so glad I have been of some help – and hopefully we are starting on a nice bull market so that you can enjoy the profits!
      x
      h

  4. If you’re open to a little constructive criticism, here’s mine: no need for drama about whether it’s a real bull, baby bull, sleeping bull, etc. Just trade your signals and have confidence they’ll work out over time. Worst case, you’ll perform about as well as the market (or slightly worse) but miss the scariest and most volatile times…and it will hopefully prevent you from panic selling at a major bottom.

    I have my own long-term market signal and that’s how I’ve decided to treat the markets. Not all signals will be profitable (sometimes you’ll sell a modest correction and buy higher) but they should work well over time.

    The book reviews are helpful. “All about Market Timing: The Easy Way to Get Started” by Leslie Masonson might be an interesting one–especially if you test some systems in the book since 2011 when it was published. My experience has been that simple, long-term systems with weekly or monthly signals perform the best. Meb Faber has some interesting work as well.

    1. Ouch. OK. Noted, too much drama.
      The reason I place a lot of emphasis on whether it is a bull market or not is probably because I was heavily influenced by the book Reminiscences of a Stock Operator. (Edwin Lefeevre) who thought that that the most important thing in trading was identifying whether it was a bull market or not, and that there was no point in doing a bull trade unless it was – hence the emphasis on trying to identify what phase the market is in.
      I’m not really interested in doing book reviews other than how they impact on ITM. The Jack Bogle books are very down on ETFs, and he is known for his opposition to them, so I felt I had to find out what his strategy was and his objections are. But thank you for your suggestions.

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