Waves? Or Tide?

Heather Cullen

Heather Cullen

In The Money

Heather Cullen Blog Waves not Tide

Was it Just Some Big Waves?

It has certainly been an interesting week. After staying in a tight trading range since the end of March, SPY broke out downwards, quite decisively, on Tuesday, followed by another down day on Wednesday. Things were looking a bit grim, but then on Thursday it reversed, with the next 2 days being two long green candles, so we are back trading over the 20 day SMA again.

We are still not out of the bear market, although ITM is in a bull trade which we entered on January 26th at $404.75. We’re in profit, but only slightly. What we need is a nice strong rally – fingers crossed.  

Heather Cullen Blog SPY

After the close on Friday of $415.93 we still have another $11.94 (2.8%) to go to officially exit the bear market. A couple more days like the last two should do it – it would be nice to be back in a bull market! But we don’t know, we can only watch and try to work out what the market is telling us.

I must say it is much nicer to check your accounts on an up day!

Heather Cullen Blog SPY Day Change

(For the curious: this is an account with 64% SPY (48% unleveraged, 48% ITM strategy, 4% ATM) and 30% QQQ (51% unleveraged, 47% ITM Strategy, 2% ATM) and 6% cash. I have different accounts for different strategies and different markets, some in my name, some in my retirement account. I generally use the standard ITM strategy in conjunction with other strategies and am testing various mixes of strategies and allocation of resources. Yes, it is hard keeping track of all the accounts, I have too many but am reluctant ever to close an account because it is such a hassle opening one.  But I do really need to rationalize! It is on the TODO list.)

SPYG for smaller accounts

SPYG is following the same pattern as SPY. It has broken the downtrend, but it is still to climb out of the bear market We entered a bull trade on 31st March when SPYG was trading at $55.36, now it is $56.15, a very marginal gain. As for SPY, we need a nice rally!

Heather Cullen Blog SPYG

QQQQ (Nasdaq ETF)

I know that the ITM Strategy in the books does not use QQQ (the Nasdaq ETF) and it hasn’t been backtested on it, but it is good to keep an eye on it. It has recovered more quickly than SPY (mainly because it had a much larger drop) and has been out of the bear market for over a month now. It has made a new post-bear high which is an encouraging sign.

Heather Cullen Blog QQQ

GLD (Gold ETF)

GLD is the ETF for gold, and gold is usually seen as a ‘flight to safety’ buy. I mentioned in a previous post that I had been dabbling in gold for a while, and I said:

I dumped my GLD options last week when the gold price spiked over $2,000 – I wonder if I will regret that?

Have a look at the chart and see what you think:

Heather Cullen Blog GLD

I was pretty annoyed when the gold price went up to $2,040, but it has dropped back again so now I am more sanguine. Gold bulls are all predicting it will go to $5K – not holding my breath, but I will watch for a while.

 If you want to see the actual gold price not just the ETF GLD then this is a good place: Kitco

VIX (Volatility Index)

Volatility continues to drop:

Backtesting & SPYG Alternatives

I have been getting a lot of queries and information about ETFs that can be used as a proxy for SPY and are better than SPYG. I rashly promised to back test them, but I have had so many suggestions it is just not possible, so instead I have decided to give a step–by–step process for backtesting that anyone can use on their choice of ETF.

I don’t automate my backtesting for the simple reason that it doesn’t match real life. It may be a good idea, perhaps, as an initial screening process, but you are going to have to make decisions in real time so (IMHO) your backtesting should be done in ‘real time’.

By real time I mean that you pretend it is the actual date you are seeing the chart, no peeks into the future, no hindsight because we are all wonderful traders in hindsight. Step through the charts day by day noting when your trading signals appear, what your decisions would be at that time, and price data of course. There are some examples of the spreadsheets I use HeatherCullen/Backtesting

Before you start the process of backtesting (it’s not much fun) you need to check out your ETF for practicality. Here are some of the things you should check:


  1. Price – if you are looking for an alternative to SPY trading at $400 you probably want to be looking at ETFs trading at less than $200 so that the options are comparatively cheaper.
  2. Check how many stocks are in the ETF – I suggest that you do not consider any that have less than 300 as this will not be representative of the whole market.
  3. Check how the stocks are selected – are they representative of all market sectors? Or are they concentrated in a sector? (e.g. resources, banks) Look for something that is broadly representative of the entire market.
  4. Check how long it has been around – if it is less than 15 years you are not going to have enough data to back test. SPYG started in 2000 so there is 23 years’ worth of data.

Trading the ETF

  1. Check that there is an options market for the ETF (some don’t have options)
  2. Check how long the options go out. It should be at least 6 months, preferably more.
  3. Check the strikes. Some have very limited strikes available, and some don’t go deep enough into the money.
  4. Check the spreads (the difference between the bid and the ask) – are they large? If so that is a sign that the option market for that ETF is small, and you may have to buy higher and sell lower than you would like. Look for a small spread. For reference a DITM (strike $30) option on SPYG ($56.15) with 230 days to expiry is (today) 2.6%. In other words, if you bought at the ask and then immediately sold at the sell you would lose 2.6% on the deal. SPY has a very tight spread: for a similar DITM option with similar expiry has a spread of 0.5%.
  5. The OI (Open Interest) does not matter so much, as the market makers will always give a bid / spread so you will always be able to sell your option – just it may not be a very good price – see point about spreads above.


  • Say goodbye to family and friends. Explain that you may not see them for some time.
  • Pour yourself a large mug of strong coffee.
  • Turn your phone off and leave it somewhere you will not see it when you emerge for another coffee.
  • Retire to your office / study and close the door. Firmly.
Heather Cullen Blog Backtest

Process – Part 1

  • You need a charting package – I use Hubb OptionGear, mainly because I have been using it for many years and haven’t got around to changing it, but that is $50 per month so I am not suggesting you get that. There are many free ones available – check your broker or use Yahoo Finance.
  • Set it up with the 200 and 10 SMAs
  • Set up a spreadsheet to record your findings – this is just the initial spreadsheet, not the full monty. You need these headings:
    1. Date of signal
    2. Type of signal (bull / bear)
    3. Current Price
    4. Confirmation date of signal
    5. Entry date (+1 day)
    6. Entry price
    7. Comments – e.g. whether the SMAs are horizontal, in which case you may have to wait some days for a confirmation signal. Any other relevant info.
  • Go back to the start of the chart, as far back as you can.
  • Start your test at the RHS of the chart. Step through one day at a time filling out your spreadsheet when you see a signal.
  • Continue up until the present day.

Process – Part 2

Now that you have a full list with all the data you need you can now start to test the actual strategy. You have to decide what initial capital you are going to have in your account, select the option(s) you are going to buy, determine the price you will have to pay, how many you can buy and how much cash you have left. Rather than list all the steps here, I refer you to the spreadsheets in HeatherCullen.com/Backtesting as examples of what you have to do.

Please feel free to let us know the results of your backtesting – I will definitely publish them here – and give you the credit of course!

Daytrading Experiment

Well, Daytrading may not be for me! I managed to reduce my account to $3,700 (from $5K) and thought enough is enough, but you can’t leave it there. I carefully traded it back to $4K and then re-evaluated.

I decided that I was only going to do EXACTLY the trades that Tom Hougaard did, no deviation. His results over the last years have been impressive, and they are all documented and verified. I can’t go wrong faithfully following him, I thought.

Heather Cullen Blog Daytrading

Well, as luck would have it – his luck turned bad also. I didn’t follow him into the trades as he was bearish in what (to me) was a bull market. I am glad. He lost rather a lot that day – UK 58K, making his losses for the month UK 68.5K. He then decided to take a break from trading and will start again in June. Just my luck! Because his results before that were very impressive indeed.

He has a Live Trading Seminar on May 12 in London, which is sold out but you can join online: here is a link: Trader Tom Masterclass and it costs UK10.

Note: I am not getting any kickback or anything, in fact he doesn’t know that I am posting it here. I am just posting it for information in case you are interested.

My Summer in Europe

Which leads me into my summer plans. If you have been following the blog for a while you’ll know that I spend the Australian winters travelling in Europe where it is summer. I am doing it again this year, leaving in May, returning in August. I will keep the blog going during that time, but the regularity depends on Internet connections which may not be great on some of the Greek Islands where I am going first. So looking forward to it!

Heather Cullen In The Money Blog ITMeter

Reader Q&A

I checked out Jason Heidecker, How to Day Trade Like a Rocket Scientist. On his website he gives it away free as a PDF as a way of selling his $995 course, which can’t be amazingly popular as the login page says that it has 18 members. I am not selling courses, advice, mentoring, whatever, although some reviews claim that I am and that the book is just a front. It isn’t. This blog is free. And if you really want a free pdf of the books, I have seen several shonky websites that do give away PDF rip-offs.  Alternatively, you can always use the Look Inside feature on Amazon if you are looking for a sample. 

No, sorry, I don’t trade any Asian market. I only trade the U.S., some Europe and Australia, Sorry!

VTI has 4K stocks, so it is diversified. Just looked up the options chain, yes, it goes out to Jan 25 which is good. The spread is rather big – today, the 100 strike the bid/ask is 107.50 / 112.50 which is a spread of 4.7% which I think is rather large? I haven’t checked the correlation with SPY, but expect that it is quite good as it is capitalization-weighted, with an overlap of 84% with S&P 500 stocks.

Yes, it isn’t as easy as it used to be – it is the volatility that has been causing it, but now that things seem to be settling down it should become easier. Today SPY is trading at $415.93 so 1% above that gives us $420.08.  Looking at today’s chain I see that the Mar 24 $200 strike is 220.59/221.52 which gives us the effective price of $420.59 / $421.52 which is just outside that. The Dec 23 $200 strike gives us an effective price of $419.71 / $420.36 which is closer so that might be a better choice. Just remember to roll in November!

Both SPLG and SPY track the same things so should be highly correlated. SPLG is much cheaper at $48.90 (today) and options go out to Mar 24 which is good. My problem would be the spread. The Mar 24 $24 strike is $24.70/25.80 which is a spread of 4.5% which is a bit high. The $25 strike is showing bid / ask of 22.50 / 26.20 which must be a mistake. It happens. But certainly options are cheaper and it could be a good alternative if you can get in at a good price.

I don’t use backtesting software, I rely on eyeballing the charts. Just like trading on a demo account is different to live trading, I find that automated backtesting doesn’t prepare you for making decisions in real time. So – see the ‘how to backtest’ section above.

This blog is getting longer and longer!

When I started the blog I envisioned a short monthly post but it seems to keep growing. Any ideas on what I can leave out please let me know!

So let’s hope we have a nice rally this week – we deserve it! At time of writing the futures are up slightly, so looking hopeful.


4 thoughts on “Waves? Or Tide?”

  1. Hola Heather: que opinas respecto del techo de la deuda? los politicos lo alzaran de nuevo o pasaran a la historia como el tiro de gracia ? como nos afecta esta noticia?
    un abrazo

    Mateo Pierotic desde Chile

    1. Hey Mateo, I’m no expert on the debt ceiling, but here’s my take on it. Since it was instituted in 1917 it has been raised 80 times and Congress has never not raised it, so that’s a good track record. The ceiling was reached on Jan 19 this year, and Treasury is using ‘extraordinary methods’ (like moving money from one agency to another when payments become due) which will keep the US afloat until June. Currently Treasury will probably run out of cash in Oct / Nov.
      A bill has passed the House of Representatives (30th April) to raise the debt ceiling by $1.5 trillion, or March 31, 2024 whichever comes first. However, the Senate is not expected to pass it and even if it does Biden has said that he will veto it. It seems passing strange that a the government would veto its own funds, but the reason is that they are holding out for even more funds. The current bill reduces spending to 2022 levels and restricts annual growth to 1%, and they won’t agree to that.
      Of course, the question is then ‘what happens if the government runs out of money’? The US would default on its loans. The US credit rating would be downgraded (it was in 2011) which means it would be more expensive for it to borrow money, the dollar would fall (meaning imported goods are more expensive), investment in the US would fall and it would go into a recession.
      What will happen this time I don’t know. I have never seen a political situation like it, so I am only guessing. There always seems to be a lot of posturing and brinkmanship as the deadline gets closer, and politicians in recent years have become more polarized and hence unpredictable. The idea that a President would deliberately put his country at risk of default and the pain it will inflict on the American people is something I just can’t get my head around. But I try not to comment on political situations, everyone feels so strongly about it these days!
      How will it affect us? Well, if the govt does not accept the debt ceiling proposed and makes the US insolvent the market will crash. How big and how deep I don’t know – that depends on how pig-headed politicians can be! It’s watch and wait as usual.

  2. Hi Heather,

    What do you make of the low VIX – given all the geopolitical uncertainty, wars, bank defaults, worlwide unrest, financial fear, market uncertainty, increasing interest rates, etc?

    Thanks again for the great information you continually deliver,

    1. Hey Ronny!
      The low VIX seems surprising given the press and general outlook – but maybe we shouldn’t expect them to correlate? For example, during the early COVID scare, until late Feb 2020 the VIX was under 20 even though the press was full of the looming pandemic and anyone with half a brain could see that it was a looming catastrophe. And again during the elections in 2020 it remained under 25 for the next 3 months, when there was major events happening.
      So, the short answer is – I don’t know why the VIX is so low. I agree that it seems surprising. Maybe things aren’t as bad as they seem? Hopeful? yes. Delusional? possibly.
      But you don’t argue with the market – it will roll right over you no matter how many people agree that the market has it wrong. The market does what the market does. We traders just have to shrug our shoulders, say we don’t know, and watch what it is telling us. Sorry can’t be more helpful!

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