Samwise Quick Reference Handbook
To streamline our daily blogs and conserve space, we’ve organized key resources into a convenient, collapsible dropdown menu below. A sort of Quick Reference Handbook if you will -- as our friends in aviation might call it. By clicking the menu below, you’ll have qu...
Please login to view this page.
Regarding your analysis and corrections in general,
1. If this correction ends up being 1 legged now that it is probable, would this reduce the chances of a 2-legged correction by a very small amount for a future correction? Or would you consider this 1-legged correction to be less impactful as it has lasted this long already?
I am moreso wondering the weights you place on each correction since the majority of 1-legged corrections have already lasted less than this one. I would think that this correction seems like any other normal cyclical correction so far, and so it would still be weighted nearly equally.
And from what I can see in your table, it is still likely that future corrections would still likely be 2-legged regardless of how this correction goes.
2. In general, what causes a correction to be drawn out? As in, you mentioned “concentrated in the 11-23 day mark”, how about for the other nearby 24-28 trade days?
(1) So I think past corrections do have an impact on future corrections inasmuch as if the market doesn’t retrace much, the next correction is likley to be larger. We saw that happen when the march correction only went for 8%. That was nowhere near enough relative to the size of the preceding rally. So it meant we were going to see a larger correction. In fact, my thinking at the time (this time last year) is that the QQQ would run up to $500 and have a major 20% correction down to $400 a share. We ended dropping to only $422.
The other way we see it impact future correction is that we’ll generally start to see larger and larger corrections as we enter a period of volatitly. I think the August correction kicked off a broad period of volatitly where we have series of corrections over a few years after a particularly big run. 2023 and 2024 were huge years in the markets — like 2016 and 2017 — and we had very little by the way of corrections. 2024 and 2025 are probably due to be more volatile years just like 2018, 2019 and 2020 were.
We had separate big correction 2018 and in early 2019 ahead of a massive move up that ended in the covid criss which in turn lead to a massive rally which ended in 2021 leading to the inflation based bear market.
—
(2) Correction I think become drawn out due to more and more people becoming less confident in the market and taking profits. As weak hands shift to strong hands, that cycle slows down until eventually the demand side of the equation outstrips demand and we rally.
Also the fundamentals at the time determine whether a correction gets drawn out. The market hates uncertainty and having no clear picture on Tariffs is probably what is causing this one to be a little more drawn out.
When comparing to the previous correction, you have to see what was going on at the time. For the 28+ day corrections, here’s what we have. Feb 2, 2022 was Leg 2 of the bear market. So we had already sustained a sell-off, a rebound and then a new second leg down which also lead to that major rebound. That makes sense as the market has fully shifted to the bear side.
May 2, 2011 was a summer correction, rebound and then another major leg down in august due to the U.S. debt being downgraded. Really that one was similar to the August 2024 and September 2024 correction. It was really kind of two seprate corrections and in fact volatility continued for a while all the way through the rest of the year. We had rallies and corrections all year until January when the QQQ went on a parabolic rally.
September 2012 Apple crashed leading to a sell-off in the NASDAQ-100. We also had hurricane Sandy which caused a market correction. As you can see, however, it was four legs.
April 2012 was a smaller than this one with multiple legs. I remember there being a larger sell-off in May with a definitive bottom and a major v-recovery. March 2022 was full fledged bear market status. So 56 sessions, 3 legs with massive rallies. We didn’t break up the bear market into too many parts. But the reality is if you look at the bear market, we had five separate major double-digit rallies.
October 2018 was the trade war period. Again, five major legs down and most of them were fully retraced.
—-
I do think the market has shown its cards at this point though and I do think a lot of professional traders and investors are all seeing the same thing. We are going to see a major rally soon. For sure throughout April and much of May we’re going to see a big rally attempt to push the market back to its highs. And at that point we either do make that put back to the highs or the market forms a big head & shoulders top.
When you look at where the support lines are and things like that, after the QQQ rebounds, the next logical place for the market to go is down to $420 if it goes bear market direction. That’s the first place. The august lows. If this ends up being just a typical run of the mill correction — which at 13-14% it is definitely is right now — then it should break out above $500 and run.
I think I may sit this next round of trading out and then buy on the inevitable second leg or break out of $500.
I might be wrong, but isn’t the next round of trading basically lowering our exposure on the ST trading portfolios at the $500 mark? I don’t think we have anymore cash in the sidelines for T&B.
The cash from closing those spreads will then be used for a strangle to protect against a second leg.
As for our LT portfolios with Stark and Frey, I believe those are pretty much done for this round in the correction, and the only considerations left are hedging after the eventual rebound.
That’s right. The LT portfolios merely need to be hedged. Or rather we need to closely examine the hedges and determine whether we want to add to them.
But the LT portfolios are all very solid right now. I”m fairly happy with where they stand.
Sam
What are your thoughts on tqqq- 3x leveraged as a way to trade qqq for anticipated bounce to 500-510. My biggest concern is the rebalancing daily, however if we are in an uptrend seems to work. I loved to hear your thoughts. Thanks
Sam can’t answer this, but there are many who hold TQQQ for years. It’s fine as long as you don’t find yourself in a bear market after investing at the top.
From a macro view:
Tariffs are pretty guaranteed to cause inflation and the FED knows that. I see your analysis from a technical point as reasonable. But i really cant see the FED give any positive outlooks to rate cuts.
I worry about this as well. But, isn’t all of this “priced in” so to speak, re: current market prices.
Not necessarily. Right now the largest concern with tariffs at the moment is that it leads to a recession. The AAII Bull-Bear sentiment is at its lowest since the lows of the bear market. Market participants are expecting a recession to follow from tariffs at the moment.
Tariffs do have the potential of being inflation. But the demand side of the curve can potentially bring costs down and with growth slowing, it could lead the fed down a path of easing.
Also, there are other areas of the economic could drastically slow as a result and offset the inflationary impact from tariffs.
Tariffs are definitely inflationary as a base. But the overall net impact could be slower growth, and higher unemployment thus requiring easing.
But I don’t even think the market potentially rallying on the fed has anything to do with the fed saying anything positive. I think it’s more the market wants to make sure nothing deeply negative comes out of the fed. Sort of like sidestepping a landmine.
Alternatively, we could see the fed capitulate the market also. We’ve seen a variety of different ways that the fed has lead to a bottom. We’ve seen it where the market rallies on the fed, sell-offs the next few days and bottoms. We’ve seen the market sell-off hard on the fed, sell off the next day and then bottom. We’ve seen straight capitulation on the fed.
And we’ve seen the exact opposite in the other direction. The market peaked in 2021 on one of the most bullish moves iv’e seen in the market and it went absolutely gangbusters on the fed just before peaking a few days later. Go back and look at how we parked in 2021. The market rallied into the fed. Rallied big time on the state and the day after. And then that was that. The market began its topping process right then and there.
So we could see something similar here and we’ve seen a lot of historic cases of the fed topping/bottoming the market.
The last important trend point I’ve noticed is that if the fed has a string of reports during a particular trend, the likelihood drastically increases on each subsequent report. Like we might see a fed statement come out mid-trend leading to a continuation of the trend. Then the next time they report — part of the state trend — it reverses the trend.
We’re sort of in that space right now. This downtrend all started with the fed statement in December and then there was a second statement in January. And now this is the third fed day involved in the same general bearish trend. we’ll find out tomorrow.
In yesterday’s comment section you stated that based on analysis, we should see the QQQ trading at $504 to $514 by March 26 and April 2. That’s when we’d want to close out our May spreads.
Does today’s price action / retesting of lows change your outlook here?
It does a little bit. All that timing is based on how many days it takes for the rally to generally fully develop.
Like when you look at the RSI tables, how long it generally takes most rallies to unfold.
Same with the correction tables. The process essentially starts over so it’s delayed probably a few sessions or however, many sessions it takes for the rally to actually start.
Now, isn’t it nice to have a little bit more money, lmao. Thank you for the analysis today Sam.