What a Wild Ride!
Yes, it’s been a crazy ride! Although we didn’t actually break a record, we were very close. The rise from the close of the day before was 11.69%, and was the second highest since SPY started in 1993.
The GFC Won
Not surprisingly, the ‘winner’ was during the GFC. On 13 October it rose 14.52%. It was a Monday. There had been major falls and there was extreme pessimism. But then, over the weekend three things happened:
- Global banks bailouts were announced
- US Treasury announced injecting capital into US banks
- Short covering after large falls
Here’s how it looked on the chart:
Candle Pattern FAIL
Something to notice in the chart: candle reading doesn’t always work (surprise!) The area circled is a text book case of the morning star candle pattern. It is a strong bullish reversal pattern, especially when confirmed by 2 days either side of the doji.
Did it work? Unfortunately, not; you can see that it continued to drop. The lesson to be learned? Don’t’ rely on candles. Use them as a way of explaining the market rather than a way to predict it.
What about the drop?
While we had a large 2 day drop (that we talked about last week) our one day drops are not breaking any records.
The biggest drop was on the 4th April, and it was the 13th biggest drop on record.
The biggest was, surprisingly, not during the GFC but on 16 March 2020 – the Covid bear.
NOTE:
(I am calculating the rise and fall from the close of the previous day to the close of the current day, not the intraday rise or fall)
A Little Gift from ITM
I have been warning against believing the MSM (Main Stream Media) commentary and advised you to do your own research. I realise that this has become harder as everything, including data that I think should be public, is now behind a paywall.
For example, I used to be able to source data from Yahoo.com – now they have disabled the downloads and also made it impossible to copy and paste from the screens. Investing.com does allow you to download – but good luck in getting useful data out of it. All their dates are in weird formats and unpredictable so you can’t use it.
So here’s what I’ve done for my wonderful readers: I’ve made datasets of:
- SPY going back to start in 1993
- QQQ going back to start in 1999
- S&P 500 going back to start in 1927
They are in Excel format so you can play with them and do your own backtesting of ideas. Hope you have hours of fun! Here’s the link (they may take a little while to download):
DISCLAIMERS
The usual disclaimers: I have made every effort to cross check them but make no representations about their accuracy. You use them at your own risk. They are provided for information and educational purposes only.
Note on S&P 500 data: Volume for the years 1927 – 1949 is not available (to me, anyhow), and the open prices from Nov 1963 – Apr 1982 are also missing. However, most backtesting and stats are based on the closing price and these are all there.
To the markets . . .
Crazy times. The market is reacting to every rumor and overreacting to any news. Let’s check the charts.
SPY Charts
It’s quite funny when you look at the size of the candles in April compared with all the ones before. Remember what we thought was a massive red candle on 18th December? Looks like a baby now. But let’s look a little closer.
Monday 7th April was a massive intraday swing, more than 8%. But look where it opened: directly on the bear threshold. Then it descended into bear territory before turning upwards into a green candle – but it didn’t get too bullish; there’s a big upper shadow as well, so it definitely rejected both the bears and the bulls.
Naturally, the next day was a down day; there usually is a reaction and we can see that the lower stopped exactly on the bear threshold. This was rejected, and it closed above, although not by a lot.
The next day was the amazing day we talked of above; the candle is unusual, not just for its size but also for its lock of upper or lower shadows. This means that the buyers were firmly in control, and there was no rejection of higher prices. The bulls dominated for the whole session.
The next 2 days were comparatively small, both inside days of the Wednesday candle. It may be that it is going to form a ‘rising three’ a bullish sign, although that is usually a continuation pattern not a reversal pattern.
The volume is interesting, so I have displayed it on the chart. The highest volume was on Monday when SPY opened on the bear threshold, and this ended up being a green candle day. The next was on Wednesday when there was the massive green candle. The OBV has turned up slightly. Is this significant? I think so.
It says to me that there is not real appetite to go into a bear market, but more a ‘shakeout’ of the weak hands. But that’s just my reading; no doubt someone else could look at the same chart and come up with a different explanation. Anyway, have a look for yourself and see what you think.
Usually, I pay more attention to the trends and don’t pay quite so much attention to reading the candles but this is uncharted territory so I am looking for all the clues I can get.
On the long term chart (which is a weekly chart), we can see the V-shaped reversal. It bothers me that it has bounced off a level (the turquoise line) that doesn’t seem to correlate with any previous support / resistance level. However, it is almost exactly on 500 which is a significant number, so maybe that is what is going to provide the support. Hopefully.
SPYG Charts
SPYG has had a bigger flirtation with the bear market than SPY, but the candle pattern is much the same, as is the volume, so please read SPY for the analysis.
The weekly chart is much more logical that the SPY chart we can see that it has bounced off previous highs (pink line) from December 2021 and March 2024.
QQQ Charts
Predictably, the QQQ chart has much in common with the SPYG chart. After closing in bear territory for three days it has now bounced up into correction territory. As for SPYG, the OBV is not showing as marked a drop as for SPY, and looks as though it is pointing upwards. Like SPY it may be forming a rising three – we will know by Tuesday night. The reading of the candles is much the same as for SPY so please read that analysis.
The weekly chart shows the V-shaped recovery, but like SPY, it does not seem to have bounced off a previous high, which bothers me a bit. However, I’m sure that the market is not worried in the slightest about what bothers me! (I have taken of the trading channel as it is now a distant memory and was cluttering up the chart)
VIX Charts (Volatility)
The VIX shows that last August’s conniption was just a baby, and this is what a real tantrum looks like. The biggest hissy fit since Covid.
And for a little more perspective, here it is going back to the start of the VIX, 33 years ago:
Volatility: when the market reminds you who’s actually in charge.
Anon
The week ahead
I wish I knew! These are the craziest market conditions since Covid, which was not predictable because no-one knew what we were dealing with. There had not been a major pandemic since the Spanish Flu of 1918 – 1920 which killed 50 – 100 million.
The GFC, while equally scary, was more predictable, as we knew what we were dealing with: a financial crisis, and there had been financial crises before. This one is strange; I have no idea how it is going to play out.
Having said that I am optimistic that we’ll have another bull market (well, of course we will eventually, bulls follow bears as surely as day follows night).
I don’t get the feeling that we are slipping towards a bear market.
But please don’t rely on that – it is just a feeling, and people can be blinded to what is really happening by their feelings.
That is why my recommendation is – stay out until we get a signal. As enticing as it is to jump into a trade now, it would be premature. Of course, we may find that this really is the bottom of the market, and it would have been a brilliant idea to jump in, but while there is uncertainty, I suggest that you wait until we have a clear signal. Remember:
A decision not to trade is a decision to trade.
In other words, choosing to stay out of the market is an active position: the trade of holding cash and not participating. Hold tight.
The futures
The futures are up slightly, the VIX is down. Looks hopeful, but with 11 hours to market open anything could happen!
So what's next?
The best laid schemes o’ mice an’ men / Gang aft agley.
Rabbie Burns
Well, that definitely applies to me; on returning last year I promised myself I was going to do some French every day. Right. It’s like those ‘exam dreams’. Now I have to cram 8 months of study into 2 weeks. Hmmmm.
But here’s what I’ll be missing while I’m away: Bunker Bay last week.
Fingers crossed or uncrossed – doesn’t matter.
We’re out for now. Although it would be nice if a bull market started.
Heather
23 Responses
Dear Heather,
The beauty of the Heather Cullen’s ITM (In The Method) trading and investing is its simplicity and it is easy to implement. Let’s keep it as simple as possible like the Golden Ratio and Pythagorean Theorem and Fibonacci Sequence so even Warren Buffett can understand it.
Sincerely,
George Henry
Thank you George – I have always found that the more complicated I get the less profits I make!
Not saying that is true for everybody, but it is definitely true for me.
x
h
Hello Heather, Just wondering if you are familiar with the concept of the “follow through day” developed by William O’Neil, founder of IBD?
It’s a pretty powerful concept for helping determine market turning points.
There’s plenty of info on Google, but I’ve done a little AI work on it and you can read about it here:-
https://bit.ly/4lBkbSN
This was done through Gemini, but I used ChatGPT, Perplexity and DeepSeek as well. I’m not happy that the data is hypothetical after 2022. We could do better, but you’ll get the idea.
Just as a side note, your example in your blog of the comparison large bar that occured on 13th October 2008 did not qualify as a FTD due to low volume, but the one on the 9 th April 2025 did.
hey Eric – haven’t had time to check this out, but approved it so that other people can get started!
Thank you!
h
Wow! Lots of good stuff
Thank you everyone
Dear Heather,
Thank you for your weekly blogs as always. The SPY is about to have its first death cross (50ma below 200ma) in three years.
Sincerely,
George Henry
HI George – I dont look at the 50/200 but have just graphed it and you are right!
This is probably significant as many traders us that as their indicator, so if they follow what it is telling them thenthere will be a further drop.
Hmmm . . . .yet another thing to worry about.
Glad I am in cash!
Learning all sorts of things today – Excel functions, VIX short options, 50/200 death cross – better start researching!
h
When VIX is above 40 I have been buying shares of SVIX which is 1x short VIX. VIX will eventually mean revert lower. I will sell these shares when VIX drops to 22.
Hi Pete – interesting. SVIX is based on futures, not the VIX spot, which introduces some risks.
But worth a look – I will check it out, thank you for bringing my attention to is!
h
Good to know about that instrument. Thanks. Just learnt something today.
The VIX hitting the 40 mark is a bit of a milestone with the sentiment indicator. And it’s all good for the upside. I got DeepSeek to do some research on past events relating to this and here are the results:-
To analyze the relationship between the VIX >40 and the S&P 500’s performance 6 and 12 months later, we follow these steps:
Methodology
Data Collection: Historical VIX and S&P 500 daily closing prices (1990–2023).
VIX >40 Events: Identify dates where the VIX closed above 40 after being below 40 for at least 30 days (to avoid overlapping clusters).
S&P 500 Performance: For each VIX spike date, record:
S&P 500 level on the event date.
S&P 500 level 6 months and 12 months later (adjusted for weekends/holidays).
Key Findings
Event Dates and Outcomes
VIX >40
Date S&P 500 (Event Date) S&P 500 (6M Later) S&P 500 (12M Later)
Oct 8, 1998 1,040 1,300 (+25%) 1,400 (+34.6%)
Sep 21, 2001 965 1,100 (+14%) 1,150 (+19.2%)
Jul 24, 2002 815 900 (+10.4%) 950 (+16.6%)
Sep 29, 2008 1,106 787 (-28.8%) 1,057 (-4.4%)
Aug 8, 2011 1,120 1,250 (+11.6%) 1,400 (+25%)
Aug 24, 2015 1,871 2,050 (+9.6%) 2,200 (+17.6%)
Mar 16, 2020 2,386 3,425 (+43.5%) 3,968 (+66.3%)
Averages
6 Months Later: +12.3% average return.
12 Months Later: +24.8% average return.
Analysis
Recovery Trend: In 6/7 instances, the S&P 500 rose over the next 6–12 months. The exception was the 2008 financial crisis, where markets took longer to recover.
Time Sensitivity: Longer horizons (12 months) generally show stronger returns, smoothing out short-term volatility.
VIX as a Contrarian Signal: Extreme fear (VIX >40) often marks market bottoms, making subsequent rebounds likely.
Conclusion
Historically, the S&P 500 has delivered positive returns 6 and 12 months after the VIX surpasses 40, with averages of +12.3% (6M) and +24.8% (12M). However, outcomes vary depending on macroeconomic conditions (e.g., 2008’s prolonged downturn). Use this analysis as a guide, not a guarantee.
Deep Seek did a lot better job than ChatGPT and Gemini.
So now we have this along with the positivity of this being a year ending in “5” Pity the presidential cycle doesn’t coincide.
Eric, this is brilliant!
So much I have learned today (see comments below) – and so much I have to learn!
Im approving this right away, without checking, because I’m sure others will want to check it out too.
Thank you – have my work cut out for the next couple of days!
h
Clues are all we have! You are so right. Being a Trader I am considering shorting the open this morning which might be really stupid or really dumb or lucky or unlucky. Good Luck!
Hey Tommy – well, at least you had a down day so you won’t have lost – unless you get caught in a volatility crush which I hope you didn’t!
I’ve tried my hand at day trading – way to bumpy and unpredictable for me – but do let us know how you get on!
h
Day trading is rough. I am getting too old for that. Looking for 3 to 5 days minimum on a move. Good Friday is a holiday which worries me because the market tends to be strong before a Holliday but my Judgment and indicators on the short term is for another leg down. You don’t know until you buy them or sell them. I use stops on most trades.
yes, day trading is tough on the nerves – especially when you are in Australia and the market opens at either 9:30PM / 10:30PM at night!
A year or so ago, I was following along with Tom Hougaard’s trades – he has an extensive track record that is impressive – but I seem to have caught him in a bad patch as I kept losing money. I stopped when I was down 10% and haven’t touched that account for a year or more.
He was trading European stocks which was much more time-friendly to me.
Maybe I shoudl start again . . . .
h
Question: I did some paper (fake money) ITMB trading on QQQ when it entered Bear territory. I bought when the MACD was below -0.5 per the ITMB strategy. But now QQQ is out of Bear territory and there was no MACD +0.5 OUT signal. So now I have a loss while holding QQQ put options when QQQ is out of Bear territory. I don’t recall going out of Bear territory being one of the OUT triggers. Did I just miss that trigger or should it be an OUT trigger? Fortunately, it is just fake money, so just my pride is hurt. Haha.
Hi JIm,
firstly ITMB (the hear strategy) has not been backtested on QQQ. Things may be quite different – for a start the MACD histogram level was specifically for SPY, and I have no idea what it would be for QQQ.
But if you are using it, the OUT signal for SPY would be when the histogram was above +0.5, which I can see it is today.
Glad you only used paper money!
h
You can create a historical data array directly in Excel if you have a Microsoft 365 Personal, Microsoft 365 Family, Microsoft 365 Business Standard, or Microsoft 365 Business Premium subscription. I just tried it and it works. You can set the interval to daily, weekly, or monthly. From Excel Help on the STOCKHISTORY function:
The columns that are retrieved [last parameters in the function] for each stock are as follows:
0 = Date,
1 = Close,
2 = Open,
3 = High,
4 = Low,
5 = Volume.
If any of them is present, only the indicated columns are returned in the order provided. Default is 0,1 (i.e., Date and Close).
Here is the formula I tested to get closing prices and volume on a daily basis, starting with the SPY opening date of January 22, 1993 and ending with the TODAY() function.
=STOCKHISTORY(“SPY”, “1-22-1993”, TODAY(), 0, 1, 0,1,5)
The two numbers (0, 1) following the TODAY function select the daily interval and to show headers, respectively. The last 3 numbers select to show columns for Date, Closing Price, and Volume, respectively.
I’ve just tried it! Brilliant!!
Why didn’t I know it – why didn’t ChatGPT know it????
And why did I waste most of Saturday cleaning up datasets!!
Thank you!!
h
For those without a paid subscription (like me), a free alternative is to use Google Colab.
Here’s how to do it.
1. Go to https://colab.research.google.com
2. Click on “new notebook”.
3. Paste in the following code where it says “Start coding, or generate with AI”.
!pip install yfinance –upgrade –quiet
import yfinance as yf
import pandas as pd
# Download SPY data from Jan 22, 1993 to today
df = yf.download(“SPY”, start=”1993-01-22″)
# Show the first 5 rows
df
# Save as Excel file
df.to_excel(“SPY_history.xlsx”)
# Download the file
from google.colab import files
files.download(“SPY_history.xlsx”)
4. Click on the go arrow (top left of the code cell)
5. You should now be prompted as to where you want the files downloaded to.
Regards,
Eric
Thank you Eric!
h
That’s pretty cool, Eric. I wasn’t aware that Colab even existed. One disadvantage of this technique is that the spreadsheet it created would not update the stock data every day, as Excel would using the TODAY() function as in my example.
Regarding Colab though – I see that it uses Google’s Gemini AI and Python. So is that code that you gave us Python code? I used Pearl occasionally in my former job and really liked it. But never got into Python. Your code looks pretty arcane, at least to me. It looks like it is loading a couple libraries, one for finance and one that I can’t even guess what. And then it creates some kind of data structure that was defined by the finance package?
Regards,
Jim
Golly, I must catch up!
h