11:00 AM EST -- NASDAQ-100 (QQQ) dangerously Close to entering double-correction
Today marks the 8th sessions since the pull-back began and the NASDAQ-100 has not shed a little more than 4% from its highs. Overall, this pull-back may be turning into something a little more than the typical pull-ba...
Please login to view this page.
Does today’s price action change anything in your latest analysis?
It change the near-term but does’t really impact a whole lot on the intermediate-term. Here’s why. Sell-offs usually proceed over a very short period of time. For example, we saw Nvidia peak in July, crash all the way down to $90 a share from $130 and then fully recover back up to $130 in just three weeks time.
While the percentage moves were huge, the cycle isn’t entirely out of the ordinary. Markets typically recover in very short order after corrections. It only usually takes about 20-40 sessions for the market to make new highs off of its correction lows.
So let’s suppose the market sustains a double-correction here. The QQQ sells off back down toward its lows and Nvidia falls to the mid-$90’s. Even if that were to occur, we’d see a bottom relatively quickly and then the market would be off to the races.
WE simply don’t have any significant economic risks on the horizon that would push the market into a deeper bear market of any kind. Bear markets don’t just occur for no reason.
Corrections. happen all the time for no economic reason whatsoever. But to see a repeat of the 2022 bear market, we’d need to see a major economic shift. And it a minor recession simply isn’t enough.
Remember, Covid, a massive spike in unemployment in the near-term and a full-blown freeze on the supply chain wasn’t enough for the market to push into a bear market. We need to see appreciable high inflation the likes we hadn’t seen in 40-years for the market to sustain a bear market.
A minor recession isn’t enough to push the markets into a real bear market. And that’s the bear case right now. For a minor recession.
So the take away here is that even if we were to see the markets go down and retest their lows in a double-correction, we’re likely to bottom just north of the lows and like to see a massive w-recovery as we head into year end.
If the selling were to continue into something more sinister here, we’d bottom out by the end of September and then rally for 3-months.
You wrote nvda under 110 could be a buying opportunity; however here you wrote in the case of double correction, we might see mid-$90’. What indicator should we watch for a double correction: QQQ hits 460 or lower?
Also does sam-weiss portfolio set up to send trade alerts? thx
I’m working on setting up trade alerts. For now, I’m going to post them here on the daily briefing As we are very long-term oriented, timeliness won’t be a huge factor. It can be depending on the trading day. But in most cases, when you buy for the long-term, anywhere within a pretty wide range of that buy price is usually good.
In terms of signs of a double-correction in play, I would say $460 is a very big line in the sand. Below $460 and we’re talking -25 from the highs and a 5% drop. There are a lot of corrections that go for 5.5%. So I do think if we see the QQQ cross under $460, I’d start to get concerned that we’re going to push down toward the lows.
As of right now, we’re still in place where this could all easily get revesed. Broadcom can deliver results that wows the market. Though I think this is very very unlikely at this point. Nvidia delivered pretty close to flawless results and the stock still rolled over. But then we also have the jobs report, Apple’s iPhone launch event and inflation reports next week.
If the news keeps coming in positive, liquidity will flow into the market. This week will definitely be a huge tell.
Thanks Sam. I think we’ll see 105-106 pretty soon as it’s trading at $108ish atm. I might pull the trigger to buy some around $105 and keep cash in hand for further buying opp in the mid-$90. Would you comment on buying some NVDL or SOXL for a short turn rebound ? I don’t recall seeing you discuss these.
Wonder what the point of entry is? Lower than 110?
In diesel cock we trust!
Hi Sam,
Would like to hear your thoughts whether holding a leveraged ETF like NVDL is feasible during the intermediate period such as a double correction due to the decay
So I’m generally opposed to leveraged ETFs. I think you can achieve the same result at lower risk by going to super long-term DITM call options. That would be my preference and it’s how we’re going to leverage here at SW.
For example, the December 2026 $60 leaps expiring 28 months from now, falls within our 2-year time horizon rule.
Those calls, which are $47 in the money right now, cost right around $61.00 right?
At that price, they will weather a crash substantially better than would a leveraged ETF. That’s due to how the time premium kicks during a downturn. I’ll get into this in a lot more detail in my section on inherent leverage.
But here are the basics. At $61, the break even price in 28-months at expiration is $121! That’s only $14 form current levels.
Now let’s play out some scenarios. Let’s imagine Nvidia runs to $150 as we expect.
If that were to happen, those calls would trade at close to $103-$104 a contact. That’s about a 73% gain versus a 40% gain in the stock. 80% gain using margin. Marginally better returns.
But the risk premium versus margin is significantly lower as is the risk of being in a leveraged ETF. Here’s why:
Suppose Nvidia were to crash down to $70 a share in an unforeseen market event. That’s a $37 decline from where we are now. If you’re leveraged 2-1 on common stock, that’s a 70% loss and likely a margin call.
On that same $37 decline, the $60 leaps would only drop down to around $42 a contract or -31%.
And if NVDA dropped even further, the option time premium will start to kick in and off/set the losses.
Leveraged 2-1 you gain 80% versus the 73% on the leaps and you lose 70% on a crash versus only 31% on the leaps. It’s less than half the losses.
Of course this requires a lot of management and we’ll have to constantly roll forward through the use of a covered-call strategy to keep our risk in check.
Now granted, I’m not super familiar with NVDA levered ETFs. But I’ve mostly preferred DITM calls over leveraged ETFs or over the use of margin.
I’ll take a look at this ETF and get back. But basically, DITM calls often carry a lower risk than leveraged common stock.
appreciate the in-depth comments. I’m interested in the DITM, if NVDA drops to 90’s in the bedtime few days – very likely, I might get a few of those, hopefully doing so by following your management skills.
one other point I’d like to get your opinion on: news came out just now that “Nvidia Gets DOJ Subpoena in Escalating Antitrust Probe”，do you consider this kind of news is going to create longer term negative impact to the stock price? ie push it down to $80ish or $75? Personally in the near term, I don’t see that, but I don’t know.
So the DOJ is always more bark than bite. These things never really have an actual impact on the companies.
We’ve seen these antitrust investigations on Microsoft, google, Amazon, apple, Facebook, intel at one time. Virtually any successful company that rises to the top comes under EU or US scrutiny.
But the worst that ever happens is a minor fine and the stock continues on its merry way.
The speculation m is always far worse than the actual fine.
It could definitely be a drag in the stock. But long-term Nvidia will be fine.
Thanks. I’m very happy I’ve joined to learning more of your trading skills. NVDA is trading at $103ish on RB， looking forward to retest $100-90!!!
NVDL is a leveraged 2x ETF that I and others buy a lot of. Would love your thoughts on that and the risks. Options seem like a lot of management.
*in the next few days…” not “bedtime”