Samwise Quick Reference Handbook
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Hi Sam, given the high degree of confidence that a correction is either imminent or underway, is deploying the last set of put spreads on the table if we get a retest?
Maybe. It depends on how it goes. You know the key thing was to keep dry powder for extremes. A 6% position is fine. We can make money on that.
We could deploy. It just depends on how things unfold.
Sam, what’s timeline on all this how fast do things unfold?
What’s the exit plan with NVDA puts? Still thinking we exit on first chance at $160?
Further, Nvidia puts probably when the QQQ is down 8%.
So we can extrapolate that the QQQ is almost certainly to see a -8% drop from its peak
Looking at all historical corrections and everything all things considered -8% is like the minimum
So my thinking is we’re probably not going to do much until the QQQ is down to 8%.
I was thinking about buying a long position this morning when the QQQ was in sub 560 as a separate trade to play the overall bounce.
But in terms of current positions we hold we probably don’t trade out of any of those until the QQQ is down 8%.
In terms of speed, these things tend to unfold very quickly. Like we could see the QQQ down 8% and like five sessions total. More often than not it’s a 3 to 5 week process the lows.
Smaller corrections are on the faster side.
Also, when counting time we’re counting from the peak. so we’re technically like five days into the correction already if it started.
The QQQ peaked 6-sessions ago.
Assuming that day 89 was the peak, we generally should see a low within the next 10 to 20 days which plays out to 15-25 sessions
Even if we don’t get a retest and complex top, are we still expecting a brief rebound due to being so deeply oversold?
Yes
Yeah, that is inevitable because we were deeply oversold this morning. Even right now we’re just barely out of oversoul territory with the QQQ at 564. We barely just came out of oversold.
Normally that bounce should go to around the midline. I’m thinking this rebound to 570 even if there is no retest.
Rebound over how many days? This rebound still looks like it’s missing some explosion
Maybe another day or two. We’re at a 38-RSI right now. So not quite at the mid-line yet.
It’s looking so weak honestly.
Two questions Sam:
So first off the model portfolios aren’t intended to be portfolios that anyone should really trade on. they’re meant to be illustrations of how to execute the strategy.
The strategy is the key, which is to get long during corrections, hedge early on and then largely stay long unless we get to some historical extremes as we saw recently. Our strategy calls for being very conservative when it comes to selling covered calls. Which we were extremely conservative when you consider where the QQQ was trading when we sold our first set of covered calls relative to historical trends.
And we almost never close positions choosing to hedge and sell cover calls instead
Consider this we needed the QQQ to go up 37% without a major pull back, which has never happened in 15 years. That’s what it took for us to lighten up slightly by selling NVDL and a few other positions. And yet we’re still overwhelmingly invested. 60k cash on 277k portfolio.
In stark, we have $40k cash and $100k invested. Part of that short.
Generally, speaking when we go long during corrections, we’re always buying slightly in the money leaps that expires two years out into the future minimum. And we have generally been allocating 55% long the QQQ, 25% long Nvidia and 20% long apple stocks.
In the next, correction, we may start to allocate the Apple capital to other stocks.
We also might reduce our Nvidia allocation to 20% long in Nvidia instead of 25%
Nvidia is now pretty far along. It’s no longer in a position to be some sort of super growth stock anymore. That’s gone.
So we might move into other growth names with a small percentage 5-10%.
But generally speaking, we go 55% long QQQ.
Realistically speaking, the Arryn portfolio wouldn’t do any worse off being 100% long the QQQ. There’s not gonna be huge performance differences because we’re talking about leaps here.
Meaning, we’d be happy to just 100% long the QQQ using our general timing and hedging strategy as our key advantage over allocations.
One thing we might do different in this correction is we might buy a hedge early on.
The one gaping hole in our strategy is that we go long and then wait for the rebound before buying protection
And this is a good strategy whenever we’ve seen a massive selloff resulting in deeply oversold conditions.
For example in the April correction, we would never buy protection on April 7. Crash, bear market, or otherwise, being that oversold was going to result in a massive rebound. So those situations we wouldn’t buy protection. in fact we removed all protection on April 7.
But in situations where we’re only down 10% and the QQQ barely oversold, there’s the risk of further downside.
Stark ended up being rock solid because we were lucky enough to get long at 500 and then see the QQQ rebound to 540 before it ultimately crashed.
Had we not purchased protection when it rebounded until 540, we could have easily seen a much larger drawdown. Though the end result was stark ended up crushing it because the QQQ bottomed and then rallied to 585. So the end result was gonna be the same regardless if we had bought protection or not. But during the actual correction itself, we ameliorated some of the drawdown impact by having protection. That also meant that psychologically people are able to whether the correction better.
So we might go long and buy protection at the same time. That’s one thing we might do slightly different.
Otherwise, we’re probably looking to not launch another portfolio. What we do in Arryn and in Stark would be an exact indication of what we would normally do with a new portfolio.
With having all of that cash on the sidelines in Stark/Arryn, the moment we buy will be the same as having launched a new portfolio.
For example, when all is said and done, we might have about 100 K in cash in Arryn at the lows. When we get to the low’s we’re probably gonna buy something like the $500 leaps expiring in June 2027. Maybe January 2028. If the QQQ falls to 520 a share that is almost certainly what we would do. And if we had launched a new portfolio, we probably would’ve bought 55% position in the June 2027 $500’s or January 2028 $500’s.
Just like at the April lows, we bought the June 2027 $400 leaps.
For Nvidia, we might buy something like the 130 or 140 leaps. We might buy back our NVDL. In fact, there’s a good chance that we do buy back the NVDL. In a standard correction, we should be able to buy it back substantially below where we sold it.
regarding NeverGonnaLetYouDown‘s second point, may I suggest adding one more column to the portfolios. to indicate whether each position is “long term”,”hedge”, “short-term trading” etc. to alleviate the potential confusion.
We may do that. We may add a column called “Type” and then we can designate it as Core, Trade and Hedge.
Hi Sam,
I can see that you are more in favor of qqq in the very long term.
clearly, the model portfolios are heavily allocated to it.
Also i remember you saying that you personally bought the qqq leaps during the april 7 low.
No nvda or any other stock.
ok I know you said growth stock will mature down the line but those stock was super discounted on april 7 & yet you still pick qqq leaps only
Just want to know why given your many experience in the us stock market
Let me just say whatever we do we will explain it ahead of the lows. Whatever it is, we do it will make sense and I’m going to be pretty transparent on where I feel the market is sort of bottomed.
But we are running into a problem where every time we put on a trade we have to put on 15 trades for different portfolios and often times we’re doing the same thing over and over again because the portfolios share strategies.
For example, Stark and Arryn are doing largely the same things. Lannister has somewhat deviated, but after the correction Stark, Arryn and Lannister will all be aligned. They will largely be the same thing but with different entry dates.
The common stock portfolios are all exactly the same if you look at them, they’re positioned in very much the same way.
The common stock portfolio will leverage along about 20-25% during the next correction. Right now they have a little bit of cash we’re gonna go from having a little bit of cash to invested 120-125% long.
But Tarly, Tyrell and Frey are all the same. They do the same things.
If we add a fourth common stock portfolio that just means every time we put on a trade, we have to send out for alerts. We have to manage four different portfolios.
In reality, we can accomplish the same end results by simply indicating where it is that we’re going long.
Arryn and Stark have substantial amounts of cash. And as I mentioned above, there’s a good chance that once we get rid of our put spreads, Arryn could be sitting at 100 K cash.
Most likely once we get to that point we’re gonna look at the portfolio look at how it’s all allocated and strive to be 55% long of the QQQ, 25% long Nvidia etc. But we have a ways until we get to that point.
Realistically, the QQQ has to fall under 551 before we’re talking correction. Without seeing a $54X, there’s no correction.
Regarding #2, all I can say really is this. The portfolios are long-term in nature right? Most of the things we do are long-term.
The only short-term trades made in Arryn/Stark/Lannister are (1) covered call sales which we discuss at length before putting those trades on; and (2) small short-term trades. If we buy a call-spread expiring in month, that’s a short-term trade. If we buy leaps expiring in 2-years, that’s our core long-term positions. Especially as we do the latter in size.
For example, as the near-term is concerned, in Arryn, we currently have a variety of covered calls we have sold against our core long positions and we bought two short-term put-spreads expiring in a month or so and that make up 6% of the portfolio.
I don’t think we’re going to distinguish them in any specific way beyond when we discuss the trades as we did with the October 17 $550-$540 put-spread and the Sep 29 put-spread. Those positions make up 6% total.
Hi, Sam
-I would like to know your insight regarding how corrections often play out. Do you count “segments” like you do rallies? Would we have fewer rebounds (less segments) and sort of go straight down this time? (given how minor the pullbacks are on the way up)
-You have mentioned the bottom will likely be the low 530 gap. Am I correct to think that the correction should last about 70-ish days, given the March 2023 rally is the most comparable to the current rally, hence the correction probably will end similarly? Assuming we are already in a correction.
Hello CF Wong:
No segments. In corrections, we haver Legs down. Corrections often play out in a multi-legged fashion. MOST corrections have 2 legs. You’ll get a big sell-off, a big rebound and then another major sell-off to the lows. That’s how MOST corrections play out.
The smaller 8% corrections, often just have the 1 leg. You get a 15-day sell-off with moderate pressure like we’re seeing today that just abruptly ends with maybe a small retest at Day 10-15. 8% total and then we go on. This happened in March 2024 (last year). The QQQ rallied from early November until March. A near 100-day rally total. Just as long as this one. It sold-off only 8%, bottomed and then went on to rally 22% to the July 2024 highs before then sustaining a larger 14% correction.
So smaller correction like March 2024 = 1 leg probably 10-15 days total. If it started, we’re already at Day 6.
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Standard or larger corrections of 10-12% generally play out in two-legs. Here’s how that might apply today. First, the QQQ sell-offs from $583 down to $550 in a $33 (5.7% leg down). The QQQ rebounds $17 (3%) up to $567. Leg 1 = -33 (5.7%). Rebound 1 = $17 (3%). After rebounding 3%, the QQQ peaks and then falls $42 to $525 at its absolute lows. Leg 1 = $33 (5.7%) and Leg 2 = $42 (7.4%). Total correction $583 – $525 =-$58.00 (10%).
So that’s how a standard correction might look like. Two legs with a rebound.
And within those legs, you have a smaller version of these things going on. For example, right now we’re oversold right? the QQQ peaked at $583, fell to a low of $558 and then rebounded to $565. If the QQQ then resumes its sell-off down to $550 this week, that’s a small two-legged sell-off within the larger leg. This is very very typical.
Expect 2-3 big legs and within those legs smaller legs. For example, in the Feb – April 2025 25% correction which was the second largest bull market correction going back to 2010, it was a clear-cut 2-legged correction. See the attached image to this comment. You can see clearly Leg 1, Leg 2, retest of the lows and the next rally.
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Correction typically last only 15-25 trading days. That’s it. It’s very very rare for a correction to go further than 35-days. The march correction lasted 36 session I believe. Take a look at Table 4.1 in the NASDAQ Tables section of the website. Sort Table 4.1 for the “correction duration” column. Note the days. It’s rare to go beyond 30-sessions really.
The listed dates in Table 4.1 are listed from when the rally began. So for example, the Feb – April 2025 correction lasted 35-sessions and is listed under Sep 2024 because the rally started Sep 2024 and ended in February 2025.
The longest correction lasted 71-days. But keep in mind we had THREE large legs each spanning around 8-9% and TWO large rebounds in-between. It was a very odd correction. The first leg down which took the QQQ down some 8-9% was normal. It lasted a few weeks.
If you look at the median duration and concentration of the sample, it’s all focused in on like 20-days +/- a few sessions. Hence why we forecast 15-25 days. That encompasses the overwhelming majority of all corrections. We’re talking trading days here. So 15-25 trading days is 1 to 1.2 months or 3-5 weeks. The average all data points considered is 23. And that is being pulled up because of the 71-days correction. Realistically, the true average is closer to 20-21. Median at 20.
https://sam-weiss.com/nasdaq-100-qqq-corrections-rallies/
Hi Sam,
What do you mean by “Nvidia can easily catch up to its historical average on earnings itself.”? Like, are you saying earnings comes out that causes an outsized negative reaction that realigns its correction beta against QQQ to historical averages?
Thanks!
So here’s what I mean. Nvidia right now is trading a little better than its historical average beta relative to the QQQ. In the past, we’ve seen Nvidia trade closer to a 2.75 beta relative to the QQQ. Meaning, a 10% drop in the QQQ corresponds to a 27.5% drop in Nvidia. An 8% drop, to a 22% drop in Nvidia. Every 1% the QQQ drops, Nvidia has tended to drop 2.75%.
Lately that hasn’t been the case. A big reason for that could be investors waiting to see how earnings plays out. The stock could be artificially inflated at the moment until earnings are released. That’s very common. You’ll often see stocks outperform their beta if they’re about to report and the market is selling off in a correction or something.
But then once the report comes in, if it’s a yawner or if in-line with expectations (nothing special) then we can easily see Nvidia play catch-up so to speak. Such that once we get down to -10%, we’re at -27% as expected based on historical average beta.
Or maybe Nvidia has truly changed and now it’s 2:1. We won’t know until Nvidia reports. My feeling is that the stock is artificially being held up due to earnings. Especially given the amount of built-in profits in the stock. The stock rallied some 115% from its lows. that’s a lot.
Hi Sam, rudimentary question – is the correction inevitable? Is it possible that QQQ proceeds to $600 after this 4.2% pullback. I’m sorry if I’m asking something that has been answered before.
The correction is inevitable at some point very, very soon. The longest rally we’ve seen in 15 years lasted 114 days, and that rally saw 10 big pullbacks. That’s what was required to go 114 days — 10 major pullbacks. Some of those pullbacks were 6% and 7% each.
The next longest rally lasted 100 days. Then we had a few in the 80s and the 90s.
They all seem to expire no later than around 100 days.
This one lasted 89 days.
Can the QQQ run up to 600? Sure, that can happen. But the QQQ is inevitably going to peak and have a correction at some point soon. These rallies aren’t going to go much beyond 100 days.
As of today, we’re at day 94 or 95. Meaning if the QQQ were to run to 600, it would have to happen after day 100. It would take an unprecedented move in order for that to happen.
Basically, it’s the same as saying it’s highly unlikely. It could happen, but very unlikely at this point. And even if it did, I’m now very confident the QQQ can’t get past 600 — it will sustain a correction right after.
Sam, any thoughts on what and how a rate cut confirmation at Jackson Hole would impact the analysis? I assume we go back to the foundation that all rallies come to an end on a probability basis? If not the rate cut, the market would be magnetic to another piece of news that people would attribute to triggering a correction? Thanks man.