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.
Sam – when you say “roll over”, do you mean a 2nd leg down? In yesterday’s post you mention a complex bottom and then a rally, so trying to reconcile the 2 points with your help. Thanks!
So right now there are a number of ways the market could play out here. It could simply just pull back toward the lows without completing the rebound. If that happens, I do think we probably bottom out in a double-bottom type scenario and we have no 2-legged correction. We just get a complex double-bottom and a market rally back to the highs.
If the rebound does go far enough up to $505 or even higher so as to fulfill the 30-RSI rebound target and/or 50% retracement, from there we could simply (1) continue higher having already bottomed or (2) the market could see another big leg down like we saw in September.
But another way this could go is a double-bottom which is not atypical either. In a double-bottom scenario, the market rebounds substantially off the lows like it already has. We went from $465 up to $495 or nearly $30. The market then comes back down toward the lows, forms a second major bottom at around the same level ($465) and then rallies back to its previous all-time highs. That’s the double-bottom & w-recovery scenario.
Here’s what we do know historically speaking. If the rebound doesn’t go far enough, it almost always means the second leg down will be anemic and not go far either.
The market needs fuel in the form of pulling in new buyers who will then unload on the next leg down and put that necessary downside pressure on the market.
If you go back and look at all previous corrections, you can see this pretty clearly. Anytime we get a small rebound — non-50% retracemnet rebound — the ensuing leg down is generally minor. It’s not the same size or scope as the first leg down.
In a true two-legged sell-off, what we should see is the market drops $80, rebounds $40 and then drops another $80. That’s a true two-legged sell-off.
That’s what we saw in the 2022 bear market and in other major corrections.
But when the market drops $80, rebounds $20, generally speaking, the next leg down might be -$30 or -$40 and then it’s usually over.
If you have a charting App, I suggest you go back and look at past corrections, draw the retracements and note what you find.
What is the difference between the first and third scenario you laid out here. I interpret that they are both complex double bottoms
Hey Sam, like you mentioned this correction has been „unusual“. Super long first leg down, anemic rebound off 30RSI, long duration and so on.
You also said the market changes first and then sentiment. I just feel like that with Trump we arguably habe a factor we probably never had in the last 20 years in terms of uncertainty and unpredictable behavior. Lately it’s just felt like Trump had a strong influence on the market that makes everything much more unpredictable?
Things do have a “wait until April 2” sort of vibe.
I agree – lately it does seem like market purely reacts to headlines. No talk of tariffs > decent rally. Talk of tariffs > gap down. Still having trouble grasping the cause and effect relationship of the market and sentiment
So then why is that not reflected in the $VIX? If Trump has created uncertainty unprecedented in 20-years — that includes the financial crisis, the European debt crisis, the covid crash, inflation flying to 10% and every other problem of the last 20-years — why is the $VIX currently trading at 18?
The $VIX is quite literally a gauge of market uncertainty. When the market is uncertain, it does two things. It sells risk assets and buys protection.
We have neither happening. A 13% correction is 100% within the normal range. An 18 $VIX is on the LOW SIDE.
If the market viewed President Trump and his policies as a threat in the same way that you’re presenting it here, the $VIX would have surged to 90 at some point by now and we’d see it consistently trade between 30-40.
Or even at least spend a substantial time trading between 25-35 as it did during the bear market. A 18 $VIX is very very low for market uncertainty. And as a peak in a correction, a surge to 30 is MINOR. That’s the outlier in this whole thing. I haven’t seen many corrections where the market doesn’t sell-off across the board with the $VIX surging to at least 50-60 on a temporary basis as we saw in August.
Also, if the market felt that things were at that level of uncertainty, we’d be down 30% atm in the NASDAQ-100 like we saw in 2022. There’d be broad based selling across all stocks with the $NYMO pushing to -100. We don’t have that going on either.
I can tell you right now as someone who has been there throughout all previous corrections going back to 1998-1999, that this is a normal correction. It hasn’t even risen to the level of the really big corrections that we’ve seen over the past 15-years. 13% is still quite small.
Makes a lot of sense, I guess what I meant is that during those times there were legitimate worries about the underlying market fundamentals. But we never really had an erratic, illogical and unpredictable factor like Trump. People in important positions seemed to behave according to the present challenges and general expectations.
Now it seems like the market should be fine but Trump is just such a wild card that nobody knows what’s gonna happen tomorrow.
Like a few weeks ago you said that the administration should come out with some statements to calm down markets. And I think under every previous administration that would be very likely. But this guy just didn’t do that at all, in the contrary really.
So I know you know a lot more about all this stuff than me and so I really value your input and view on this stuff. Just some stuff that was on my mind, since you yourself said that this correction was quite unusual. And past corrections that were really unusual because of extenuating circumstances. I guess I just wondered whether Trump is some kind of „new“ extenuating circumstance ????
Thank Sam. What happen after NVDA bounce off to 119 level ? Do we get more resistance there ? NVDA has been trading relatively weak from what I have seen past few weeks, even the QQQ rebounce strongly.