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...
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So I’m guessing if we have any cash we’d be looking at deploying on the correction end of July and not on the pullback in early July.
So I can say that we’re not deploying cash to any long trades right now. At least not at the time being. If the QQQ pulls back and that pull-back results in oversold hourly, we may trade it near-term. We might buy for a rebound trade.
But we put all of our serious money to work during corrections. All of our portfolios main positions are all executed during the lows of corrections.
Even Stark — which has the highest entires — bought its first positions on a 8-9% decline from $540 down to $500 on the QQQ. We usually need an 8-10% decline before deploying capital in a major way in our portfolios.
IN the last correction, we transitioned to the long side between $400 and $425 a share in all of our portfolios. In the common stock portfolios, we leveraged long the QQQ. In Arryn, Lannister and Stark, we closed puts and bought leaps in that $400-$420 zone.
Hi Sam,
What would be your plan if NVDA doesn’t re-test $160 before it’s 12-20 point pullback? Are we confident NVDA will re-test $160 after the pullback and thus we’re waiting for that? What is the thesis behind why we’re confident NVDA will re-test $160 after the pullback?
Thanks!
So I’ve run some stress tests and ultimately we’d like to exit at $160 ahead of a correction, but if we’re forced to hold through a correction, that’s fine as well. It’s not a huge difference at this point given the reduction in size of the position. The impact is marginal now.
I do think there’s a strong chance Nvidia gets through $160 ahead of a final top though. Chances are it tops out between $160-$165. It could even get up to $170. But I think $170 is too rich for Nvidia fundamentally speaking. At that point, it really isn’t worth holding anymore. Especially given the general volatility. There will always be a time where we can buy it back for much cheaper.
No different than holding it at $130-$140 ahead of the Feb – April correction. Same concept. Nvidia at $160 is on the high side of the range.
Hi Sam,
You’ve mentioned in the past that segment rally analysis and negative divergence cycles tend to correspond. What do you think causes this? Is there a psychology / technical reason causing it to be self fulfilling?
Thanks!
I think money is put to work all at the same time and as markets drive higher they become overbought just as they’ve risen 8 to 10%. That’s what’s going on here.
And right around the time we reach that 8 to 10% mark is about the same time the market goes through a divergence cycle.
They both seem to indicate the same thing just from different points of view.
The table basically shows you how far these segmented rallies tend to go and where they tend to top.
The negative divergence cycle kind of tells you the why of it.
Hahaha AAPL
Here comes AAPL with the steel chair!
Hello Sam, Could you specify over what timeframe and how many trading sessions on average you expect “a 12-20 point response is expected, and the next correction should result in a 22-25% loss in the stock. A correction from $160 to $120 or $160 to $130 is very likely.” Is this sudden, over a few trading sessions, and therefore very risky for NVDL, with a sharp decline, hence your selling?
Best
Karl
Corrections occur over long periods of time. It’s not a sudden thing. You can get a sense by simply clicking on the NASDAQ tables. They show you how long correction is generally last. It’s like 4 to 6 weeks.
The average typical correction is 15 to 30 sessions long. If I were to toss out an average, it would be like 20 days. That’s what you should expect 20 sessions to go from the high to the low.
The last correction lasted something like 33 days.
When the NASDAQ 100 sustains a correction, so will Nvidia.
Just like how when the NASDAQ 100 bottom on April 7 so did Nvidia. Nvidia goes where the market goes.
So I expect the next correction to begin sometime in the next 20 sessions. At some point in time between now and the end of July is when the correction should begin.
This is based on historical trends. If this rally follows the longest rallies historically then it can go as long as the end of August.
When the market tops it will likely sustain a 12% correction from wherever it peaks. It will take 20 to 30 trading days for this to happen.
When that happens. Nvidia will fall 22% to 25% from wherever it peaks. This is consistent with what we have seen in all prior corrections with Nvidia.
Check any of the past NASDAQ 100 corrections of the last two years and that’s what you see 22 to 25% down
Hey Sam, TSLA’s been sinking and is accelerating AH. If Elon’s renewed comments lead to another sell-off, potential short-term trade off oversold conditions (if it gets there)? What are the implications of the market being in pullback territory? Both coinciding at the same time would be ideal, but what if they don’t?
So depending on the circumstances, we may trade it. Anytime you have a stock that pushes oversold ahead the market, it tends to outperform on the downside. Like since Apple didn’t participate in the rally, there are less profits built into the stock and thus, it’s less likely to sell off as heavily as other stocks in a correction.
If Tesla reaches oversold as the market begins to sell-off, it’s likely to outperform relative to how it would have traded had it not been oversold to begin with.
But at the moment, our expectation is for a near-term pull-back only. We expect to see the QQQ pull-back only 3-4%, rebound toward the highs and then from there we could see a market top and correction.
Hi Sam,
we are still looking at qqq 510-500 vertical puts at 550+ right?
at the next re-test after this pullback
So we’d like to see the QQQ push up to $560 for that. Just to stay on the more conservative side. If the QQQ runs put o $560, we may trade out the June $500 puts for a put-spread.
Not sure it would be $510-$500. At $560, we can afford to move that up considerably. Probably $530-$520 or something like that.
The recently discovered comparisons to the Covid rally kinda of derailed that whole strategy a bit. The current market set-up is looking pretty similar to the Covid rally. So we have to be very carefully how we trade that.
I do think it’s still a very strong strategy. We just might decide to do it along side the June puts with maybe a 5% position perhaps. Like we do have cash on the sidelines on all three leaps portfolios. We might decide to deploy some of that capital toward the trade. The point of the trade is too beef up our hedge.
By leveraging our capital during the first part of the correction, we get a larger hedging impact.
So the though is to trade the vertical put-spread ahead of the correction and then just as we’re bottoming out, we transition to the June puts which wouldn’t have climbed anywhere close to as much. It gives a stronger hedge long-term.
So we might do that. But I’d like to see the QQQ pull-back 3-4%, and then rally to $560 first. Hopefully going through that cycle will get the QQQ as close to day 80 as possible.
Under those circumstances, we have a strong trade. Because at 80-days, the correction is no more than 20-30 days out maximum. So we’d be able to time it all out well.
Hi Sam,
Sorry for the late comment, but could you elaborate on what you mean by “broad long-term trend suggests that $550 is a little too low for a peak”? What trend are you referring to and what metrics are you analyzing / comparing in this case?
Thanks!
So when you look at long-term trend, and compare to other environments, it’s very rare for peaks of intermediate-term rallies to be close together. A peak at $550 is simply too close together with the previous peak at $540. Open up the QQQ daily and you’ll see what I mean. Corrections tend to occur at substantial new highs. A peak at $550 would be almost like a double-top. We rarely get corrections like that. It happens, but it’s on the rarer side.
Take a look at the 15-year chart attached. Notice how the QQQ is on a constant incline. We get new highs > correction > new highs > correction. That’s how things typically unfold. There are exceptions like in 2018. There were two close peaks in 2012 as well. But typically, we get substantial new highs first.
That’s what I meant here. Just at a glance $550 just appears too low.
Separately, I do think we probably need to see overbought on the weekly as well. If you look at most previous corrections, they tend to occur at weekly overbought conditions.
Also, notice just how predictive oversold conditions on the QQQ really was. When the market was selling off, that was a massive tell that we were at a bottom. Note the response. I hope that’s something everyone paid really close attention to. That was the big sign that a prolonged rally was on the horizon.
Do you have a minimum % threshold that represents a “substantial” new high? You’ve mentioned 2-4% in the past. 2% on the lower end would put a peak at $550, but perhaps you’re saying that’s too much of an edge case to count? 4% would put it at $560 so that lines up.