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Does Israel-Hamas negotiation put us in Bull position? And then we have change in government next week. I know any news can be a positive or negative from WallStreet perspective, but we have few uncertain previous weeks. And these news should start a Bull rally. How much impact these events would have from your stand point?
So the market isn’t driven over intermediate time-frames by news items like this. It’s mostly driven by much much larger concerns. For example, the direction of Fed policy or the general direction of inflation.
News like today’s ceasefire have only short-term impact on the market. Also, the general supply-demand, risk-opportunity and rally-correction cycle is what drives things.
When stocks get too expensive and there’s not a lot of investment opportunity out there, the market tends to pull-back and/or correct. When stocks get undervalued and investment opportunity emerges vis-a-vis low stock prices, the demand for equities surges and we get a rally.
The change in government has already been factored into the market. The market is fully aware of the upcoming administration change and have already priced it in. In fact, the post election rally which took the QQQ from the $490’s up to $538 priced in the results of the election. The swearing in and actual change in administration may result in a short-term rally, but that’s all we’ll see as it relates to administration changes.
Any new policies introduced by the incoming administration that weren’t previously anticipated could have an impact. However, unless these policies represent significant, lasting changes—such as a major fiscal shift like the tax cuts introduced during the previous Trump administration—their effects are likely to be short-lived. Minor adjustments or announcements are unlikely to trigger a sustained market rally.
Market direction is determined by broad issues like monetary policy — the fed’s stance on interest rates, expectations for earnings, expectations for the economy etc.
Given that we filled the 511-516 gap, we were already on a third leg down and that we’re at the end of a normal correction period (timewise), it seems unlikely that we’re gonna have much more downside in the near future. If we do have downside soon, it seems it would be a good time for a Targaryen trade?
We are. Next bit of selling, we’re going to put on a Targaryen Trade. And we changed it a bit. There’s something we’re going to alter on the trade to increase the probability of success.
Hello Sam,
Does today’s increase seem like a trap to you with the risk of retesting the lowest levels, particularly in view of the upcoming inauguration?
Not so sure I’d say it’s a trap. But I think we’re probably going to at least fill today’s gap before the market starts a new rally. We’re almost overbought on the QQQ. Recent trading action has lead to a peak on that set up.
@Sam, for some reason, this post does not show up in the Daily Briefing page. It can only be accessed with the direct URL I received by email.
Thanks for the heads up. I forgot to add one small thing. The last wordpress update is really bad. It makes things a little more difficult in managing sticky posts. It’s there, it’s just below the last few posts. It’s fixed though.
NGLYD Rick Astley, where are we on the inauguration chart? I haven’t been able to unsee it, since you posted it. 🙂
Hahaha exactly ! It’s a mashup meme 🙂
Hey Sam,
given the current outlook (possible downside / gap fill ahead), what’s your plan for the open Baratheon positions (NVDA & AAPL March Calls)?
Thank you
And more generally, what are the exit strategies for Baratheon if any trade goes south?
With your adjusted outlook on a potential proper correction from which the market might not recover + rally beyond by the end of March (and therefore adjusting the Targaryen trade watch to May instead of March spreads), would you have a stop-loss in place at a specific price level and/or a certain number of days left to expiration (especially after a possible second trade entry at another leg lower)?
In contrast to the main portfolios adhering to the core guidelines and Targaryen (which has been explained more extensively in recent posts), I feel like the strategy for exiting trades in the Baratheon portfolio isn’t as clear to me yet (or maybe I missed a post that covered it in more detail).
Also, would it make sense to roll the current March calls to May if we presume today’s move was just a small bounce before a possible gap fill-down?
Thank you for taking the time to clarify !
We wouldn’t use stop loses on options trades. For Baratheon, we used measured trades — small positions to soften losses when trades go south.
It is an inherently higher risk portfolio without well defined hedges or exit strategies in place. Exit strategies are based on the circumstances at the time. The circumstances for each trade in Baratheon is very very different and so have different parameters.
With such small allocations and near-term trades, we don’t have a lot opportunities to hedge. We’ll have some on the way up by selling covered calls, but there aren’t a lot of situations that permit us to buy puts in a way that would protect the portfolio and create a solid profit margin at the same time. Hence, why the Baratheon Portfolio is high risk.
With common stock trades in a momentum situation, we will use stop-losses. We haven’t made a momentum-based trade yet as the portfolio launched during a high risk period of the market. Once the market stabilizes and goes back into rally mode, we’ll start trading momentum instead of oversold set-ups.
We’re holding both positions for now. They’re both initial positions. If the market rallies, we’ll continue to just hold both until we’re overbought and/or feel we’re nearing a peak. At which point, we may either close the positions or sell weekly calls against those positions.
For Nvidia, we feel fairly confident Nvidia will visit $150 and so we’ll probably hold that position until that point. That could take 5-10 sessions to play out.
For Apple, it reached oversold territory and when Apple begins a new rally, it’s likely to move up about 10-12%. We’ll hold that Apple march position until that point.
If alternatively, the market sees one more leg down, then we’ll add to those positions at oversold territory, wait for the bounce and close out the initial positions.
For example, suppose we get another leg lower, we’ll likely buy April calls in both positions. then on the rebound, we probably close out the march calls and hold the April calls through the duration of the next rally.
It’s hard to devise a plan when the market hasn’t moved yet and we don’t have overbought/oversold signals yet. If the market moves forward, we’ll just continue to hold our current positions. If the market pulls back, we’ll add to each.
Hi Sam with the BOJ signalling a plan to hike rates soon do you think it will have as much of an impact like the August carry trade correction this time?
Hi Sam. I recall in one of the previous posts you saying it was very unlikely and rare to see a fourth leg down on the QQQ. On today’s post the expectation is for a small pullback to fill in the gap. Would this pullback constitute as a 4th leg down? If so does the 4th leg down carry any weight to it?
It depends on how far it goes. In fact, it depends on how far the rally goes too. It’s not part of a separate leg if the market doesn’t veer too far in one direction or the other.
So the last few legs lower went for -25 to -30 points each. $538 down to $508. $531 down to $504. $527 down to $499. Those are three big legs down.
A pullback from $516 down to $505 — which is about 10-11 points — isn’t really a full leg lower.
But if the QQQ were to continue higher up to the $520’s or up to $525 for example and then pulled back to $505, then yeah it’s a fourth leg lower.
This whole formation we’re seeing is rare. We don’t see anything like this all that often. The last time we saw something like this was back in early 2023. Just after the lows. But even that formation was only two legged.
So all of this is really rare.
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In terms of whether the next leg lower can spark anything, it really depends on the selling pressure. We just haven’t seen any follow through. Every time the market grinds lower, there’s no conviction behind it. There’s risk of everything selling-off. But we just don’t have any follow through in any of the legs down so far. Eventually, the market is going to take a shot in the other direction. I’m surprised it hasn’t already.
Thank you for the insight. When you say you’re surprised the market hasn’t taken a shot in the other direction, do you mean to the upside?
Yes. It’s not normal for the market to make so many attempts on the downside without making a strong push toward all-time highs. Normally, the bears get two tries. Not four lol.
Sam, it seems we have been making lower highs for the past few weeks. Do you know how long these higher lows / downward sloping channel usually lasts? (i.e. do you have an analysis you’ve done of similar downward sloping channels in the past?)
Thanks again man,
They don’t typically last this long. It’s not normal for us to see three different cycles. This is currently the fourth cycle. What it suggests is there’s a lot of uncertainty in the market.
I don’t have any previously saved downward channels like this because they just almost never occur in the NASDAQ-100. They’re that rare. In most cases, it’s a hard down followed by a hard up.
Ahh, yeah, I have been scanning past cycles on the QQQ and didn’t see anything similar either, so good to know the experts are not seeing anything either. Once we break this trend, are you generally bullish or bearish? And any thoughts on as to what the uncertainty / clarity the market is needing? (e.g. presidential orders, etc).
So I’m overall bullish on the market long-term. I wouldn’t say I’m bearish in any sense of the term at all. If anything, I’m data dependent on the near and intermediate-term. If we’re overbought and have gone through a 10% segment, then short-term I’d expect a 3-4% pull-back in the market. if the market is oversold on the daily and hourly and has just sustained a 12% correction, then I’m ultra bullish on the near and intermediate-term.
Long-term, I’m PERMANENTLY bullish. There is nothing anyone is ever going to say to me that will convince me to be bearish long-term. I’d rather just hedge out long-term risk and be long then try and time some bear market that never arrives. There are a lot of traders out there that are dooms-day oriented and it’s a very poor position to hold because the markets rarely sustain any real selling. Bear markets are extremely spread out.
If you look at the market long-term, it is constantly moving higher with tiny insignificant blips on the chart every decade or so. Even the financial crisis is a tiny insignificant blip compared to the overall trend. If you look at a 30-year chart of the market, the financial crisis is barely noticeable. So in that sense, I’m bullish.
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Intermediate-term, if the market breaks out and starts to make new all-time highs, then we’re bullish. The expectation is once the market gets going, the QQQ is likely going to $600 before sustaining another correction. At $600, we’re talking a 60-point correction (10%) down to $540. Which makes sense given the previous all-time highs would have been $538. So a move from $500 up to $600 and then down to $540 makes perfect sense.
Now eventually, the entire bull market cycle will end and we’ll see a 30-40% bear market that lasts a year or something. But I think that’s still a long ways off. We just started reducing interest rates. In terms of the business cycle, we’re still early. Also, the QQQ is only 30% above its previous bull market peak. So we have a ways to go time and price-wise.
There’s no way to reliably know when the overall rally will end. The only thing we can do is just hold hedges in our long-term portfolio to protect against a 40% drop. And that’s what we have right now in all of our portfolios. We’re hedged in 4 of the 6. The 2 were not hedged in we just started buying and are 50% cash.
I assume we’re waiting on this, only if we get pullback or regardless?
What today’s action sort of tells me is that we do need to finish buying our positions for Stark and Frey. We don’t need full positions in those portfolios just yet. But we should add to them. Bring them both up to 50% long. I think they’re both just shy of 50% long.
So I’m expecting a short-term pull-back. During that pullback, we’ll add some things. We should have bought Apple and Netflix in both portfolios. With both down so much from their highs, those were both strong opportunities. Especially Apple which is likely to revisit its highs in the not so distant future. Chances are when we go back into rally mode, Apple goes back up to $260.
Hey everyone, if you’ve enjoyed Sam’s guidance, let’s show him some love on X. It’s criminal how he is not more well-known. Let’s help this place grow.
Selling weeklies when deeply oversold is the only real way to do this. But then you run the risk of not being protected if a crash occurs.