Expect the Unexpected.
This blog is coming to you from the roadside just outside of Le Bugue, in the Dordogne. I am stranded. Wearing a gilet jaune. But that’s a story for later in the blog. Let’s get down to business.
One up, one down
That’s the last 2 weeks.
The first was all up, almost too good to be true. Lovely.
Last week, all down. Dismal.
But not exactly unexpected.
However, that doesn’t make sense statistically.
Conditional Probability
Conditional probability goes against every grain of human feeling. Notice I said feeling, not logic. We know that even though we have thrown 5 heads in a row, that has no bearing on the next toss of the dice. The coin doesn’t know what has happened before. How could it? It is a coin! So it’s still a 50-50 chance.
Except that our minds don’t accept it. We KNOW that 5 heads in a row makes it more likely the next toss is going to be tails.
Application to the market
Here’s where the market differs from pure statistics. The market is made up of people, and if they don’t accept (emotionally) conditional probability they will act accordingly. So, if the market has gone up for 5 days, then they feel that it is likely to go down.
And so they sell. Voila! A self-fulfilling prophecy.
The Downgrade
The downgrade from Moody’s was unexpected – there was apparently nothing to trigger it. But then, neither was the last downgrade in August 2024.
I mentioned in a couple of replies to questions that I had done a post on the last downgrade, which was still applicable. Here’s the link: Didn’t see that coming!
To the markets
This is coming out early, for reasons I will explain later in the blog, so it is coming before any of the futures markets are open, and any of the market news is in. But let’s start.
SPY Charts
This week was as dismal as last week was good! We have reversed all the gains from the week before and are now resting exactly on the 200 SMA. The golden cross (confirmed by the gap) is still there, so no action is required. The market has waves, and we have to roll with them until it is clear that the tide has turned.
The long term chart shows the extent of the pull-back, which is not huge.
SPYG Charts
SPYG is following a similar pattern to SPY, reversing all the previous week’s gains. Like SPY, the golden cross is still in force so no action is required.
The weekly chart shows the pullback for some perspective.
QQQ Charts
This is getting monotonous I know – QQQ has reversed last week’s gains, but is still in golden cross territory. I note That there was a gap up on Monday 2 weeks ago which has not been closed – this is usually thought of as a good (bullish) sign. Watch for this week’s trading – if it is closed that is not a good sign.
And the weekly chart shows that the uptrend is still in force.
VIX (Volatility) Chart
The VIX is up a bit, and out of low-volatility territory.
ITMeter
The week ahead . . .
Too early to tell . . . let me explain ;
My glamorous life . .
This blog is coming to you from the side of the road! Yes, my trusty steed had a major flat tyre, and it being Sunday, France is shut. Ferme. Dormir. Rideau. Ronquer. Morte. Including Europcar who own trusty steed.
The dawn
Here’s how the day unfolded. I left Bladanel after staying overnight with friends.
Bladanel as beautiful and peaceful as always. Saw some chateaux, admired beautiful scenery, had lunch and then . . .
The drama
Trying to avoid a crazy French driver I went too close to the kerb, and now I have a puncture. Major. Poor trusty steed – completely unable to drive.
I called Europcar’s emergency number (the 24/7 one, ha!) and got a virtual assistant called Anna, with ‘voice recognition’ except that it didn’t recognise voices.
Not mine. Not the nice French guy who stopped to help.
The trauma
I won’t go on about all – but in the 5 hours I was stuck at the side of the road I thought I might as well do something useful so wrote this blog.
I thought I was going to have to spend the night in the car instead of the nice chateau I am booked into – over 40km away, but can’t leave the car here. But luckily there was this little local hotel not far away.
The Rescue
Finally, I got through to someone (in the Philippines!) and they send a pickup truck, with a lovely driver who agreed to drive me to the . Not exactly what I was hoping for, but clean and the front desk lady was wonderful. Instead of a river view from a chateau there was:
The happy ending
But then – across the read – lovely restaurant on the river, beautiful view, river babbling, birds trilling – wonderful food – absolutely perfect.
The moral of the story is . .
Julian of Norwich, a 14th-century English mystic and anchoress, wrote:
“All shall be well, and all shall be well, and all manner of thing shall be well.”
Or as someone more famous said 300 years later:
‘All’s well that ends well.’
Hopefully next blog will come with less drama
Heather
Trade the tide, not the waves
18 Responses
Hi Heather,
I just finished your first book and absolutely loved it. As soon as I was done, I went straight to your website to read the blog — it feels like the perfect companion to keep following your strategy. I read that some people receive blog updates by email, and I’d love to know how I can join that list. Thanks so much for sharing such valuable insights!
Hi Joel – thank you for your kind words! I am glad that you liked the book and found it useful.
Re the blog notifications – Just fill out the contact form – here’s a link: https://heathercullen.com/contact/
I don’t actually send out the blog itself, just a notification that an update has been posted and a brief summary. Everything is on the website.
Glad you can join us.
h
Hello Heather,
First of all, that You so much for all the time and effort you put into the Blogs, I for one trully appreciate it…
I receive the Blog announcements, but not any e-mail alerts… Is there a way I can check to make sure I am on the list???
Thanks Dave
Hi Dave – thank you for your kind words!
Re the emails – if you are receiving the blog update announcements you will also receive any special updates / alerts – it is the same database.
But lets hope there aren’t any for a while an we settle into a nice steady bull market (oh, yes. please!)
h
Hi Heather,
Is there any chance to put video on how you draw resistance and support on charts.
Hi there – that’s a great idea – a few videos would save a lot of words.
As soon as I get back from holidays I will do it.
I’ve also been experimenting with some other voice and leanring systems which seem reallt great – but too hard when I am travelling and only have a little laptop!
h
Dear Heather,
Thank you for your weekly blog as always and thanks goodness you are safe. As an American citizen of the United States, I am concerned with our country’s government debt at 120% compared to China’s government debt at 90% and EU’s government debt at 80%. We need to make China and EU to pay their fair shares by engaging in international commerce fairly and justly and not taking advantages of the United States. Sorry I don’t like to talk politics and I don’t want to offend anyone in here.
Sincerely,
George Henry
Hi George Henry – yes the debt situation is concerning – we in Aus haven’t got it quite that high but I believe we are the highest in the world for the rate of inv=crease. And we’ve (speaking generally, not me) elected the same govt again – they do not know the word ‘restraint’.
And here’s where my head explodes – if everyone is in debt, who is holding the debt? I’m off to ask ChatGPT because I can’t work it out.
x
h
Just asked – got aa long winded reply, here’s the summary for the US:
Summary Table
Holder Type Approximate Share of Total U.S. Debt
Federal Reserve ~19%
Other U.S. Gov Accounts ~8%
U.S. Private Sector ~41%
Foreign Entities ~32%
So while the U.S. is in massive debt, most of it is owed to itself and its own citizens, with about one-third owed to foreign investors and governments.
Glad you survived and found help out there on a sunday. I go with trade what you see and not what you think or feel. This is a perfect opportunity for us to check our emotions and see if we are disciplined enough to follow the strategy. we are still in the trade until we get an exit signal.
HI Jeff – yes, survived, thank you – but Sundays here are something else! Everything closes.
Re emotions – we can’t stop actually having them, but we CAN stop reacting to them. Not that it is easy!
Been reading up on ‘anchoring’ will do the next blog on it.
h
Hi Heather!
Sorry wanted to ask if it will be possible to have backtesting spreadsheet in xls/csv format instead of pdf, so that it is possible to see all columns (in current pdf files headers are broken up to several pages in the middle which makes it hard to read / understand the data)
Great views of France!!
Sincerely,
V
Hi V
I don’t give out the original spreadsheets any more – I found it an enormous drain on my time as some people (not you, I am sure) would change a few figures then claim that the spreadsheets did not give the results I claimed. I would then spend days going through , finding what they had changed, but it was usually too late, they would have given a review saying I had ‘massaged’ the data.
However, it is easy to recreate the spreadsheets – here are the instructions : https://heathercullen.com/backtesting/ and choose backtestin documentation. It gives a step by step (column by column) description / equation.
Hope this helps
h
So… I rent a car from Enterprise and take everything except the
” roadside assistance “… He says I’ve saved the malibu for you sir. Smuck says ” I’ll take the cheaper car – Mitsubishi mirage … ” I get into this thing and it has a mind of its own. I’m lucky I make it home alive. Market – buy low and sell high and if it doesn’t go up don’t buy it.
r
Hey Randy – well, I’ve been a client of Europcar at their Elite level for around 20 years – and have never had this trouble with them before.
I am regretting that I’ve already book more cars with them – in England / Scotlnad, then later in Switzerland. Maybe I should cancel but I think I’ve already paid. Dammit.
And can you send me the details on how I can always buy low and sell high?
h
I’m glad you survived the flat tire. Maybe the adventure was worth it.
Looking at the US economic fundamentals doesn’t fill me with optimism. The political picture may be obscuring the problems. However, adding three to four trillion dollars to the US national debt is not good. Hopefully the budget passed by the House gets cut by the Senate. The Senate hopes to complete their work by July 4th and then it goes back to the House. Between that and tariffs you can look forward to lots of drama this summer producing more volatility.
This is of course my humble opinion and it has been fooled more than I care to admit.
Hey Larry – I forgot to mention that the Lexus 450 doesn’t have a spare tyre!! So no chance of fixing it myself.
Re general economic outlook – I know that the debt is huge, but I am feeling hopeful that finally it is being taken seriously and that steps are being taken to fix it.
Unlike many, I have long been a fan of humans – so inventive, creative, energetic – all they need is to have the drags on them taken away and they can bloom. I really hope that is what is going to happen – but then I am the eternal optimist (except when I have a flat tyre and no spare!)
h
I drive a HONDA CRV, it does come with a spare tire, but just one of those tiny narrow ones. Unfortunately the spare tire speed limit is 50 mph and they have limited range… I modified my car to fit a full size spare after being stuck on a two lane freeway where the typical driver was going 80-85 mph (which I would have been doing with good tires ) with no other way home. The weekend traffic returning from Lake Tahoe to Silicon Valley can be quite sporty. If it had not been late on Sunday it would have been much better, there are plenty of tire shops but none were open… This tendency to no spare tire disturbs me, and I want it full size.
Hi Kate – totally agree!
I used to have an RX8 and I got a puncture just before Xmas one year – of course everything was closed!
Sometimes you wonder if we are just making it hard for ourselves!
h