Samwise Quick Reference Handbook
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Hello Sam,
What about NVIDIA ?
If QQQ goes to 500$, NVIDIA will drop 40% to 50% also so 80$ to 96$ target price if NVIDIA goes to 160$ before drop ?
It’s huge…
Best
Karl
Probably not all the way down to 80, likely to 120-130
So the beta compared to QQQ has shrunk significantly? Why?
Frankfurter is right. $160 to $120 makes sense. That’s 25%. Nvidia drops 23% in a standard correction of 10-11%. It’s not going to fall 50% just because of a regular correction.
The reason Nvidia fell 43% in the last correction is because the QQQ fell 25%. That’s not even 2-1 right?
So a 12% correction leading to a 24% drop would be a larger beta relative to the QQQ than we saw in the last correction. If the QQQ falls 14%, it might fall to the $110-$120 range. But it’s highly doubtful that Nvidia returns to $100 a share or lower. We’d need to see a much larger correction for that to happen.
OK, so there is no question of a stronger correction from now on?
No one said that. The QQQ can fall 40%. There’s no such thing as “no question of a stronger correction.” The QQQ can do whatever it wants.
What was said above is this:
If the QQQ falls 10-12%, chances are Nvidia drops ~23% or within a range of 23%. It could fall 18%. It can fall 26%. But somewhere in the 23% zone is where it’s likely to fall. $120-$130 lows.
If the QQQ falls 14-16%. Large correction, but not crazy at 20%, then most likely Nvida drops to the $100-$120 range.
For Nvidia to fall under $100, we probably need to see a 20%+ correction on the QQQ first. Just like in January to April.
Hi Sam,
Do we have any data on how long negative divergence cycles on the QQQ tend to last before an imminent pullback occurs? Would it be insightful to tabulate that out to forecast how much longer we feel this current negative divergence cycle will last? Or, is using segmented rally analysis as a proxy enough for this as the negative divergence cycles tend to line up with end of segments? This would be mean the current negative divergence cycle should be ending within this week, yeah?
Thanks!
So first off it’s not certain whether negative divergence leads to anything at all. It’s mostly just a high risk factor when taking together with other pieces of evidence gives you a basis to make a reasoned forecast.
But there isn’t a well defined rule of the number of days or hours that’s needed for this to unfold.
For example, on the daily chart back in July 2023, we saw it unfold on a daily timeframe in 10-15 days. That was a textbook example.
So on an hourly timeframe, that would be something like three days.
It shouldn’t last that long. Though you could have multiple instances.
For example, you could have a situation where the QQQ hit a 90 RSI then an 83 RSI and finally on the last peak of 70 RSI. On each of those overbought levels, it makes a new high. So maybe it hits 560 at a 90 RSI, 563 at an 83 RSI and finally 566 at a 70 RSI.
What I just described there is negative divergence. The issue of timing isn’t always easy.
I am away from my desk right now, but when I get back, I will publish a chart that shows it.
I’ve published a number of times and you can see the delay is often anywhere from a 2-5 days. Sometimes it’s longer.
What we do often see is whenever the QQQ gets deeply overbought after a long run, this kicks off a delay period where the QQQ continues higher for a very short period of time before ultimate selling off.
But I just don’t have a very specific timeline for now long this lasts. I’ll post the chart when I get back and you can see it for yourself.
Hi Sam,
If I ask ChatGPT or Google about the concept of “segmented rally” I’m not really seeing any hits. Is this one of those unspoken truths behind the professional investor curtain? Have you noticed any other professional investors also charting segments like you do? Or is this specific to your contrarian (I remember you mentioning this term in another comment) strategy of investing?
Thanks!
This is 100% me. It’s an observation of how rallies have tended to unfold since the bottom in 2022. If you look at each major rally between each correction, they tend to unfold and very specific ways.
Each rally will have 3 to 5 of these segments and what generally happens. Is you get a pull back of around 2 to 5% ahead of another, move to the upside.
It’s a very characteristic of this bull market. If other people recognize it in the stock market, they do under different names and parameters.
Negative divergence is a well accepted term and concept.
What I have found is that these segments tend to unfold just as we reach negative divergence. The analysis essentially goes hand-in-hand together.
You could see the segments on the chart itself on top of the table
But yeah, this is 100% just my analysis. The reason we segmented rally is because intermediate term rallies tend to unfold in segments of 3 to 5 smaller runs with 3 to 5 smaller pull backs. It largely just depends on how long the rally lasts.
Sometimes we get into a consolidation phase and there’s no real segment there.
Like we’ll get to a consolidation top or consolidation just before continuation.
But as the meat of intermediate term rallies are concerned, it’s mostly unfolding in segments like this.
Broad runs of 12 out of 14 sessions to the upside with big percentage gain of 7 to 10% followed by a peak and pullback of 3-5%.
Negative divergence sort of provides color on when these segments might end.
I think it may be similar to what technical analysts calls “measured moves.”
Sam, why do you emphasize that it’s important to wait until just the right moment to buy the put spread. I mean, why “risking” that the QQQ fallouts before Stark buys while the spread could be bought for essentially the same price now, give of take 0,09 $ per spread ?
Do you expect more clarity as time passes? My reading is that the only remaining risk is 1-the market skyrockets, or 2-market goes sideways for a long time like we saw in December-to-February, and both risks are already hedged by the position size. So why adopt this type of waiting strategy ?
I understand that risk 2 could benefit from more clarity to fine-tune the contract date, but I don’t think we would gain clarity from this type of risk as time passes.
So, perhaps buy part now, part later ? Or all now ?