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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Still unloading the Oct 17 spread?
If we reverse course. They need to be at least around $0.20 to even make sense. So if the QQQ decide to the fill the gap and give up the gains — that’s totally within the realm of possibility — we may close them then.
Sam, Do you think the correction will definitely be over 10%? It’s already gone down around 3.5%. So another 6.5% would be 10%. I think that would be just under $550 on QQQ.
I think Sam is expecting it have a decent chance of being more, but is basing his plan around 10% to be safe in case it is a smaller correction
We don’t forecast in such defined ways. There’s no way for us or anyone else to know how far this correction will go at all. There’s just no way to predict what’s going to happen in this particular case.
What we can say is that corrections typically range 8-14% with the average correction running roughly 10%. Sometimes you get a smaller correciton of 8%. Sometimes you get a larger correction of 14%.
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Now we can also add some color given the current rally. If we sort Table 4.1 in the NASDAQ Tables page by “total rally %,” you can get a sense of what the markets likes to do after large rallies.
For example, after the dot-com rally, the QQQ had an immediate correction of 40% which lasted over 40-days. That was only the beginning as the dot-com era ended in a nearly 3-year bear market where the QQQ dropped some 90% overall. But as the immediate correction goes, 40% in 40-days.
After the Covid rally ended (second largest rally), the QQQ sustained a normal 14% correction.
This rally is the third largest.
The fourth largest rally — October 2002’s 45% run — ended in a 19% correction.
SO we have:
Dot-com = -40%
Covid = -14%
APril 2025 = TDB
2002 = -19%
Feb 2003 = -8.63%
Mar 2009 = -6.71%
Now the feb 2003 and mar 2009 corrections happened right off of a huge rebounds off of the lows. SO they don’t really count for much. Like the market bottomed after March 2009. And so after a 38% rally off the lows, it’s not crazy to expect hte market to only pull-back 6.71%. Same thing with Feb 2003.
Whereas Dot-com, Covid and April 2025 are all rallies occurring mid-cycle or near the end of the bull market.
^This is the type of analysis you have to do to make a forecast and even from this data, one cannot really firmly conclude that we’re definitely going to see an X-level correction after Y-rally. All we can say is there are different indications that we’re likely to see a larger correction.
For example, if you continue down the list, of the top 15 rallies, here are the corrections that follows:
#1 = -40.04%
#2 = -14.17%
#3 = TBD
#4 = -8.63%
#5 = -6.71%
#6 = -11.63%
#7 = -17.61%
#8 = -11.53%
#9 = -8.07%
#10 = -30.39%
#11 = -12.81%
#12 = -7.26%
#13 = -12.05%
#14 = -11.38%
#15 = -19.11%
Of the top 15 rallies, four corrections went for 8% or less. 10 of the rallies lead into corrections of 11.53% or more.
11.53%+ Corrections 66% of the time.
8.63%- Corrections 26% of the time.
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Now this is very important. I don’t do anything special here. Your guess looking at this data is just as good as my guess. I’m merely at these numbers and coming up with a forecast. I’m not adding anything special into the equation here. What you see and I see here with 66% of the top 15 rallies leading to 11.5% corrections tells me that there’s a 66% chance the QQQ sees a 10%+ correction. I don’t know where it ends though. We’ll have to make that assessment as the QQQ drops and reaches oversold conditions.
All we can really say ahead of time is there’s a higher probability this rally leads to a greater than 10% correction with some probability of it being a smaller correction of 8.63% or there about.
If you look at Table 4.1, what you’ll find is that out of the 49 high vol rallies we’ve observed since 1999, 19 resulted in corrections below 10%. That’s 38% of the generally. Meaning, theres’ generally a 60-40 split between 10% and sub-10% corrections.
And interestingly enough, 12/19 times we saw sub-10% corrections, it followed sub-20% rallies that were below average. That’s 63% of all sub-10% correction occur as a result of below average rallies.
That’s why the 38-62 ratio doesn’t really apply to the current situations and why it’s closer to 25-75.
75% chance we see a 10%+ correction
25% chance we see a 9.99% or less correction
Thanks Sam!
Sam: Thanks for sharing this post so early this morning. It’s been a huge learning experience for me over the past year. Posts like this have given me reassurance and confidence to press forward with the strategies that you’ve taught. Great work and appreciate all of your insights!
Are we buying puts today?
A new high of $0.01. As our table is concerned, we count the actual high as being the high.
So if the QQQ never returns to its highs, then we’ve started the correction.
We count the number of days in a correction as the number of days it takes to go from the absolute peak to the absolute trough.
We count the rally as absolute trough to absolute peak.
So a new high of $0.01 necessarily causes the rally to continue as the Nasdaq tables are concerned.
QQQ nlod at 590.12; VIX back over key level 20 back to Friday highs almost entirely erasing all of yesterday’s gains; it seems the correction is in fact here, and the QQQ did not want to spend anytime above $600; 3.5% down, 2% up, 2% down.
QQQ ramping