Samwise Quick Reference Handbook
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Sam, QQQ is trading at $504 right now. If it ends up pulling back but still closes well above $493 (for example $496-$498), is that bullish or bearish? Would that mean we’d be more likely to pullback the next few days, or more likely to close above $500 in the next few days?
Hello Sam,
The signal for a powerful rally finally seems to be here, as you indicated in the option.
Taking a look at NVIDIA at $130-$140 now that the $122 support level has been broken?
Are the other downside scenarios falling through?
Same here, quantum is waking up!
You also wrote this on May 6th :
As the chart above shows, the clearest resistance line for Nvidia is at $116. This is where resistance is significant, and the stock hasn’t broken through since March.
This is where we want to see the stock break through.
A break above $116 would put Nvidia on track to test its resistance level of $122, established in March.
Beyond that, the stock could rise freely to $142.
Does this mean we’re heading to $142 without a pullback?
No, support hasn’t been broken. Support is holding at the moment. Periodic surges beyond $122 don’t count. It needs to get to $125 and close above $122 for example.
First Name is right. Nvidia has not taken out $122 resistance yet. It is hanging right around $122 right now. It needs to go way beyond it for it to be a breakout. Like as you see with the QQQ breaking way above $493
Is NVIDIA’s pullback expected after the rally to $130 or before? I’m not sure I understand your last point. Thank you.
$123 is resistance line. Nvidia MUST move through that resistance level convincingly. It’s not enough to go above it by $1 or even $2. It needs to be convincingly through resistance. For example, last resistance was $116. It pushed through $118 and up to $120. That’s evidence that $116 resistance is gone. Same thing here. $122-$123 is the next resistance level.
Nvidia must go way above $122-$123 to be considered a breakout. Until that happens, it’s still battling $122-$123 resistance. It can top here or if it gets through, then chances are $126-$130.
You need to look up and research support & resistance lines and how they work to understand it.
Hi Sam,
Is there a price point for NVDA where it WOULDN’T make sense to trade out of our July spreads to reposition? Or is it all based on oversold / overbought cycles, regardless of price?
Thanks!
Not really. Once it goes deeply overbought >80 RSI, it is a ticking time bomb. A sharp pull-back is inevitable at that point.
We want to trade it in order to get a lower spread that is more likely to close in the money.
Hoe are the RSI’s looking right now?
Minor at the moment. barely at 70.
Gotcha! Could you check my options math here Sam.
Looks like the July 130-140 NVDA spread are trading at $2.9, which is pretty close to what we bought our current July spreads. Those are roughly $8 OTM. That means if we NVDA has a pullback to 114 we’ll be able to re-enter for the July 120-130 spreads for roughly an equivalent price to what we paid for our current July spreads.
Is that correct / the idea here?
Yeah, that makes sense. And we wouldn’t need to buy them at $2.90. If we sell the $125-$135 spread at $3.70, we would aim to buy the $120-130 at $3.70.
The key here is to just switch out the strikes. Use the pull back as an opportunity to do that.
What are the QQQ/NVDA RSIs looking like?
Mildly overbought
Sam, talk pull backs…. $460s seems off the table for now?
are we going to see $470s/$480s?
Doubtful at the moment. It really just depends on how things close out.
But I’ve seen this type of thing before, and it often means a return to the highs. I know this exact breakout it’s not novel. We’ll get back to the highs way before anyone expects it.
What we’re seeing right now is the exact reason why it’s important to always remain long
It’s always better to be long at all times and hedge out the downside risk.
That is the most crucial thing that I’ve learned over my entire investing career.
It’s the principle I am going to hammer home with kids.
It’s so easy to want to take profits when the QQQ rallies 15-20% from its lows.
It’s almost always a mistake. The right way to do it is to hedge like we’ve done. It allows us to press our advantage.
For the QQQ to get down into the 470s, it would require a peek right here and then a 4 to 5% pullback.
More than likely if we did get a peek over here, we would get down to the low $480.
The sense I get is the QQQ is going to run hard from here.
Today is a very significant session that often sparks a full-blown intermediate term rally.
If the SPY catches a bid, then forget it. It’s important to remember that we were deeply oversold on the daily.
When that happens, we tend to go right back up to deeply overbought on the daily RSI.
We’re not even at overbought yet.
And truth be told the highs is just a pitstop. We’ve seen this exact thing so many times in the past.
Let’s put it like this. There is a higher likelihood at this point that the QQQ rallies to 600 then there is that it goes back to the lows. Preponderance of the evidence points to 600+.
Often times if we’ve had a major correction like we witnessed, and the market returns back to it’s highs it usually blows way past it
Covid crash is a perfect example of that. But even writing Covid off if you look at the chart virtually every time we have a correction off of all-time highs when the market returns to those high it blows past it.
We could very easily see the NASDAQ 100 at 600+ by January with Nvidia pushing $170+.
Is there a chance that QQQ can get back to $478? Sure. There’s even a case to be made on the near term technicals since the QQQ still hasn’t reached over sold.
From a time perspective, the QQQ has ridden the overbought line for a long time,. But that has to be counterbalanced with what we’re actually seeing right now. And a breakout way above 493 and far north of 500 is extremely bullish. What’s more, the QQQ is not deeply overbought.
Being deeply overbought is a bigger trigger than is overbought for an extended period of time.
If the QQQ got up to an 80 or 90 RSI, the chances of a pull back to the 470’s would be much higher.
But as it stands right now, it doesn’t look like we are going in that direction
Yeah yeah just funded my 401K with $70K cash. Retirement is different part of me wants to just throw it in today regardless because time is on my side. We all know how it goes, if you look at the graphs and you’re not long on a handful of days every year or miss a year altogether it could cost you big.
A 10% corrextion from 600 gets us down to $540 which is still higher than today.
Balancing discipline with the I have 30 year horizon, but also knowing I’ll kick myself if I don’t get a crack at lower basis.
I know you can’t address what to do, just pointing out why I asked and challenges investor face.
Many ways to look at it, cash is a position for one but so many variables here.
Sam,
do you plan to buy more qqq puts as a hedge? if so, at what point ?
I guess we would like to see QQQ deeply into overbought category again to add hedges again. Now it’s like it went a little overboard and came back, it might retest.
Not at this point. So here’s the process. We purchased the hedge right at the spot where the risk was at its highest. The reason for hedging is so that we can remain long.
Once the QQQ rebounded roughly 18-20%, that is where the risk was at its highest for another leg down.
Our risk diversion strategy at that point was to either reduce our exposure or hedge.
We took option B, which was to hedge. That hedge allowed us to continue to participate on the upside.
At this current price level, risk has come down significantly. The overall probability of a major correction back down to the lows has now become negligible.
So there’s no reason to add protection right here
We are sufficiently hedged such that if the QQQ were to fall back to the lows from here we have protection.
Now once the QQQ rallies back up to around 540 a share, our protection will no longer be effective.
At that point, we would probably want to both reduce our long exposure slightly and purchase a new hedge.
Just like we did when the QQQ rallied to 540 the first time around.
At the outset and/or launch of Arryn/Lannister (August – January) we bought the QQQ down near 430 a share. We purchased a hedges for our QQQ positions when the QQQ reached around 480.
That hedge lost value and effectiveness once the QQQ reached 530 to 540 a share.
At that price, we did three things. First, we reduced our exposure very slightly by selling one contract in our leaps.
Second, we sold premium against our long position by selling the February $530 calls or something like that. I can’t remember the exact calls we sold. But they ended up producing a pretty big profit and offset against our cost to hedge.
Third, and most importantly, because Arryn was up so much, we bought a second set of puts to protect our profits. I believe we did something similar in Lannister as well.
Our first set of protected our cost basis, our second round of hedging protected our profits
We are going to do something very similar here. The hedge we have on now will protect our NEW basis essentially ($150k in Arryn).
But once the QQQ reaches all-time highs, we will then need to purchase a new set of puts to protect our profits.
So for now we’re not doing anything. There is nothing for us to do here.
The overall probability overwhelmingly points to the QQQ reaching all-time highs in the next few months
If that doesn’t happen, we are protected anyway
At the current moment, we’re just in a zone where buying more protection doesn’t make sense. We will buy more protection once the QQQ gets close to its highs.
We may sell premium somewhere around the 520 level
For example, if we get up to 520 a share, we may be able to sell the October or November $550 calls for $20.
That would be well worth it because worst case scenario we’re forced to sell at 570 which is not a bad place to close out
So for now we’re not doing much in terms of new hedging
Understood, thanks for the in-depth explanation ????
Interested how we sustain above the levels mentioned to signal a true breakout while we are pushing 80 RSI on the hourly for QQQ, SPY and NVDA
So suppose the QQQ reaches an 80 RSI near $510. At that point, it will kick off the negative divergent cycle, which means another 6-8 dollars of upside or more before ultimate peak.
From 516-518, the QQQ can pull back to 500 hold support and that would fulfill a short term pull back.
Nvidia tends to peak right off of deeply overbought conditions.
We don’t often see a negative divergent cycle with Nvidia.
With Nvidia, it might reach an 80-RSI and then pull back 6-8 points ahead of a 20 point rebound
So Nvidia might pull back from 125 down to 118 ahead of a surge up to 138. Or it might go from 125 down to 116 to test its other area of support before surging.
That’s how it might go.
A short-term pull back isn’t going to derail what happens in the intermediate term.
The QQQ breakout point is 493 and now the QQQ is far past that.
At this point, what the QQQ bulls want to do is hold 500 psychological support. True support is at 493.
Also, it’s important to note that when the market moves above a support level, it can remain overbought for a very long time.
Sam, You were saying that if NVDA breaks convincingly through $123, that it will probably go to the $126-$130 range. But you also talked about possibly selling at $125. It is now at $125.95. Would you take profits now, or would you wait for it to get closer to $130?
Is there any significance to 80 versus say 78-79 in being considered deeply overbought on the hourly RSI?
No. Not between 78-79 and 80. The more overbought things go, the more likely it is we’re nearing a near-term top.
Hey Sam, didn’t you write last week that even a surge above 500 would only delay an inevitable pullback?
Is that out the window now? I mean surely it can’t surge up to ATH and past it without any pullbacks, right?
Yeah. Eventually it will pull-back off near-term overbought conditions (3-5%). That’s different than a larger intermediate-term pull-back. A larger intermediate-term pull-back of 7-8% could be a long ways off.
I expect we’ll get a peak somewhere around the $510 area ahead of a short-term pull-back. After that we probably get another surge.
Hi, I am using trading view
& i notice my rsi is slightly higher compared to Sam’s
is it because of the input source?
there are several choices: open, high, low, close, (H+L)/2, etc etc
any idea which to choose?
Pre Market looks like we will see overbought RSI today
Trade Watch?
Pre-market looks like we might get deeply overbought conditions today with NVDA close to $125 and QQQ at $509
Might be a good time to close out May 16 540 spreads as well?
!!!NVDA 80RSI!!!
It’s hard to conceive closing out NVDA when it’s on a run. Look at May/June 2024. These moves seem to go straight up real fast.