The Bear Market Rollercoaster

Heather Cullen

Heather Cullen

In The Money

Bear Market Rollercoaster Heather Cullen

The Bear Market Rollercoaster.

OK, so photoshopping isn’t my strong suit! But you get the idea. This has been a roller coaster of a week! In fact, a crazy fortnight with SPY dropping below 350 and almost hitting 380 (intraday). That’s a swing of almost 10% – enough to unsettle the most phlegmatic trader. The craziest day was Thursday, where it moved over 5% in one day.

I must say I was fascinated that day. I was watching at market open when it was down just over 2%, then I watched in disbelief while it rose . .  and rose . .  and didn’t look back. It rose almost 5% in two hours! I ended up being glued to the screen for most of the night (I’m in Australia), watching the 1-minute chart on SSE (the Schwab platform). Here is the 2-minute chart (the 1-minute chart was too hard to read), with the trend lines I was drawing trying to work out what was going on.

SPY 13 Oct Heather Cullen

ITMB Bear Trade

In the last (special) blog post I noted that the conditions on for getting out of our bear trade were met on the 5th October and if we were following ITMB we should be exiting the next day. The close on the 6th was $373.20 which was approximately the same price as we entered so that trade would have lost little or no money.

I noted at the time that the bullish sentiment seemed a bit fragile and that I personally would be watching to see if the uptrend continued before deciding. Of course, on subsequent days it continued to drop, apart from the massive 5% rise on the 13th, so if you did decide to stay in you will be quite happy, if somewhat twitchy.

In The Money Heather Cullen SPY 17 Oct

The conditions for reentering a bear trade have not yet been met. While the MACD histogram turned negative on the 11th it was less than -0.5, and it turned positive again on the 13th, but also only marginally (see chart above, and circle around the MACD Histogram). 

So, we are on the sidelines yet again watching and waiting.  And note that when I am updating the backtesting I will be strictly following ITMB rules.

So where is the market going?

Obviously, no one knows but our best indication is to look at the past and see what happened in a similar situation. Here is a great chart that superimposes the current bear over the two previous ones (they leave out the covid bear, presumably because it was atypical). If we follow the pattern then bulls are in for a lot more pain, and bears could do very well.

Bear Market comparisons Heather Cullen

However, I’ve got a couple of things I should point out about the graph. Firstly the ‘number of weeks from the start of the bear market’ is misleading, because clearly the chart starts well before the peak of the market. Secondly, the black line (the current bear) seems to finish around the end of May so we probably have already been through the second phase. Remember, it is always a good idea to check things for your self.

What should we be doing?

As I have said in previous posts, it is OK if you want to sit out the bear market. It is uncomfortable to trade, partly because it can feel wrong to hope the market goes down, and partly because it is so fast and unpredictable. If you decide to follow ITMB, then remember not to be too highly geared (i.e. make sure that you are very DITM) and don’t use your entire capital – make sure that you have enough to stay in the game if the trade goes against you.

Another view of the market

This time looking at the emotions of traders. I would be interested to see where you think we are at the moment. We’re definitely not at Panic yet, but I think we may be a little past Complacency. What’s your take?

Heather Cullen In The Money Wall St Cheat Sheet

Q & A - Readers Questions Answered

Do you know a good stock-picking service? 

No I have never found one that worked! Every year or so I subscribe to something, out of curiosity. The first thing I do after I join is to review their previous trades – all of them, not just the good ones in the headline, and I have been amazed at how bad the overall performance generally is. They have ranged from the truly awful to the not too bad, almost-matching-the-market. It confirms my view that trading individual stocks is not a good strategy.

Do you do private coaching? 

No, I don’t have private clients, and I don’t have a subscription service (although I notice that the latest review on Amazon says that I do! If anyone wants to refute that on Amazon here’s the link to report abuse. )

I have thought of perhaps doing an ‘inner circle’ for ITM where there is a higher level of personal interaction, but I haven’t progressed this idea.

Why do you do the ‘confirmation +1 day’ to get in and out of trades?

If we are looking for a signal, e.g. waiting for SPY to close below the bear threshold, then we have to wait until the end of the day to know the closing price – which means that we can’t trade that day as the market has already closed! So, necessarily, we have to trade the next day.

What is the most that ITM has ever lost?

I don’t know this off the top of my head, but looking at the spreadsheet ( it looks like September 98 was particularly nasty, as was the covid bear.

Have you heard of Lee Gettess?

No, I had to google him. His most recent book was 2004 and is currently unavailable on Amazon and there are some videos but the most recent is Feb 2021? I can’t find any information on his strategies so I can’t really comment.

How much do you use candlesticks?

I always use candlestick charts, to me they give the best illustration of what is happening. I always keep an eye on candlestick patterns as they give an insight into what other traders are doing, but I don’t base trading decisions on them.

How do you know the premium out?

 As we are using options that have either little (1% if expiry more than 30 days) or non (expiry less than 30 days) then we can calculate the out premium by the formula:  current price – strike.  So, for example, if SPY was trading at $300 and you had a strike of $200 and there was only 7 days to expiry your premium out would be $100. If there was six months to expiry it would be $101.

Heather Cullen Polar Bear Thinking

The next two weeks . .

. . should be very interesting. The midterms are getting close, and may have an effect – but who knows?

If there is a signal to get into or out of a trade then I will do a special post here, but I will not email everyone. I don’t want to get on a SPAM blacklist, and I am sure that you all have enough emails in your lives not to want any more. 

If you did stay in the bear trade then remember to monitor is every day; if you are thinking of reentering when we get the signal then you also have to check the chart every day. I will definitely post here before market open if you need to do a trade that day.

Oh, for a boring market again!

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