Samwise Quick Reference Handbook
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TSLA is going up and NVDA is going down. Woww
Sam you mentioned last week that you should’ve bought some NVDA at $116 and mentioned dyesterday that it won’t drop by much is that the case here with the sharp sell off today?
Nvidia’s chart still looks very strong overall. Today’s underperformance is odd. It’s kind of out of left field. But the hourly set-up on Nvidia overall strongly suggests a big rebound is coming. I’d like to see it push oversold a third time.
When Nvidia does underperform like this, it often makes up for it by outperforming in ensuing sessions. Our intermediate-term conclusions don’t really change due to today’s underperformance. Still think Nvidia ends up finding a lot of support at its previous lows ($113) and at the $100-$110 a share buy range. That’s during the correction.
Are we ultimately looking to sell at the QQQ RSI midline or would we let it ride way past it? Seems like you previous analysis said midline would be the move but now that is not the case? Just want to make sure I’m on the same page.
So we need to see the mid-line close north of 50 + rebound close to around $18-$20. Those two things taken together are highly indicative of a peak. So today if the QQQ held on to its gains and closed just past a 50-RSI, we’d be heavily reducing our QQQ positions.
Got it. However the chart you posted today shows significant more upside after the midline was hit. Is it simply too risky to wait for more upside once the close above mid/$18-$20 rebound occurs? Thanks for letting us all pick your brain.
Yes. Risk is the problem. So you have to guidelines for exiting. How else would we determine its time close out the trade?
What we know and we’ve seen is this. When the QQQ reaches oversold territory, it invariably pushes back up above the mid-line on the ensuing rally. There are such an extremely narrow set of circumstances where this didn’t happen.
Virtually every time the QQQ pushes into deeply oversold territory or records multiple instances of oversold conditions, the next big thing to happen is a rally past the mid-line. And that means closing above it. Why closing above it? Because the chart won’t show it as having ever been above the mid-line until it closes above the mid-line i.e. if during an hour of trading it goes north of 50, that hour needs to close out with the RSI above 50.
Once we get to that point, there’s probably a little more upside. But we don’t have any guidelines for exiting now. So we use this indicator as a guide. What other guides can we use?
Past retracement history. How much of a retracmeent does the QQQ normally see? If we look at multiple cases where the QQQ has fallen $20-$30-$40 points, historically speaking, how much of the sell-off is retraced in the rebound?
What we’ve seen as a normal retracement is around 40-50%. In rare exceptions it only retraces 30%. But as we showed in yesterday’s update to the Current Outlook, 50% is very consistent. $20.00 is very consistent. So what is $20 from $497? $517. That’s another guideline.
So our two guildlines for reducing and/or exiting our trades are 50-RSI+ and +20 rebound from the lows. A 20-point rebound would be a 47-48% retracement.
Would it be a good time to buy the 5 QQQ spreads I couln’t buy last Friday? Mid price is 2.48 now.
We’re not buying anything at the moment. We will add to our position if the QQQ pulls back to its lows before closing above the mid-line. So if it gets back down to $498-$499, we’ll add closer to $2.00-$2.10
I am not talking about the ‘we’ for new positions, I’m talking about the 5xQQQ spreads order ticket of Friday. Since mine didn’t fill, I was thinking about executing this one today at an opportunistic low point in the day.
So the problem is I can’t answer that question the way it’s phrased. I’m given guidelines on what I can and can’t say. That’s one area I’m not permitted to touch on at all. It’s one of the narrow exceptions to free speech and is heavily regulated.
I can say what “we’re” doing all I like. I can say what the model portfolios are doing no problem.
I can’t give recommendations or insights or comment on what anyone else should or shouldn’t do.
The two big areas we run into all the time is:
Question: “I can’t buy spreads. Should I but xyz instead.”
Can’t answer it at all. All I can say is “here are the types of ways the model portfolio would capitalize on the trade set-up. Here’s what we absolutely would not do and why.”
Question: “I missed the entry at $5.10. It’s now trading at $5.15. should I still buy?”
I can’t answer it.
“I missed buying on Friday. Should I buy 5 contracts in at 2.48”.
That’s a straight up I cannot answer it.
So I try to answer in a way that I can and which could be potentially helpful and/or which might help people work through the problem. Which is to say,
——-
Really, when it comes down to it, a lot can be inferred from the way we do things here. So if you’ve missed some sort of course of action, the way to course correct is built in to what we’re doing already.
Notice we missed an entry at $496-$497. we wanted to add 20-30 contracts to our position. We wanted to go all-in on Friday. We didn’t.
Understood. Sorry I did not meant to put you in a difficult position.
I got them at my price in the end (just now).
No need to apologize. Just explaining it. I think I might write up a list of things I can’t answer and then post them in a member’s based FAQ page.
“ Today’s high point indicates a clear momentum shift to the buy side. Even if the QQQ sells off back down to the lows, it likely form a double-bottom (similar to the August 2024 rebound) and then it will begin its $20+ bounce into the mid-line. ”
Hi Sam, does today’s momentum shift change the near-term outlook that there will still be a second leg lower? Or is the “double-bottom” statement above just referring to the rebound part and we could still get a next leg lower to 480-475?
We are still getting a second leg lower. I am talking about the $20 rebound we’ve been discussing. I’m saying that rebound is still likely to occur in that today’s high points confirms we’re going to get there. Sometime this week we’re gonna get up to $515-517 on the QQQ.
So our new term expectations haven’t changed.
—-
Our intermediate term expectations also haven’t changed. The NASDAQ 100 probably sustains a second leg down after the rebound concludes.
So I’m still expecting the QQQ to get up till around $515.00 peak and then fall to $480.
The point of the update is to illustrate that even if the market were to retreat back to its lows we’re still due a $20 bounce before we see any serious selling.
Edit: Serious selling means a -40 leg down from similar to what we saw last week. That’s what we mean when we say a second leg lower. $515 down to $475-$480 a share.
Considering entry to Nvda?
We need it to reach oversold first vis-à-vis the update. See 10:10 AM post. Got to get down to the prior lows and oversold.
sorry! I’m figuring out how to delete comments on the app but it seems we cannot atleast on iOS. do you use unusual whales to track put and call flows when gauging price action?
nvidia is getting hammered! Has the short term outlook changed?
Near-term? No. We’re still on track to $113 and third oversold print.
Edit: Not sure we’ll get to deeply oversold at $113 is the issue though.
Would we only enter if it gets to deeply oversold, which I’m assuming is 20 RSI on hourly?
For Baratheon and Targaryen, yes. We also have to consider the fact that the entire stock market is on correction watch.
It’s at $115 does the $2 and oversold indicator really matter in the grand scheme if we expect a short term rebound up
It does matter for what we’re doing and the types of trades we’re putting on which are very price sensitive.
Let me give an example of why and what could happen if we don’t wait for optional conditions. Suppose Nvidia gets down to $113 and it’s mildly oversold. It hits 30 or 29 even. We get long.
At 30-29, Nviida can easily fall another $10 no probable before really getting oversold.
Whereas if we buy it at a 20-RSI, the probability of that happens plummets. We’re likely to buy at a place where the stock is likley to rebound.
Especially given that we want to go in with a larger position and then reduce in half on the first part of the rebound.
For example, we might buy a $2.3k position at deeply oversold in the July $130/$140 call-spread. That spread costs $2.85 right now. That’s 8 contracts costing $2,280.
Now suppose Nviida rebounds $8-10 initially — just as it has the previous two times it reached oversold during this correction — we could close out half the trade or say 4 contracts. On a $10.00 bounce, those probably go up to $3.40-$3.50 or higher. If we close out half, that means we’ve made $0.55 to $0.65 in profit on those contracts further reducing our $2.85 cost-basis in the other 4 contracts o $2.35 to $2.25. Now we have a much lower risk position overall and a smaller position to boot.
We can’t do that if Nvidia isn’t at an optimal entry. We need oversold again.
But that’s just for the trading portfolio. For a long-term portfolio, Nvidia is at a decent price point right now. Though we’re not going to add in any of our long-term portfolios until we’re confident the correction has ended or is coming to an end.
That makes a lot of sense, thank you for the explanation Sam.
TLDR : NVDA is juicy but not ripen enough yet, lmao
The blacker the berry, the sweeter the fruit
Hi Sam,
How are you calculating the % allocation in your trade alerts? Is the allocation % just a % of the total cash (prior to purchase) in the account?
I have to estimate. It’s based on the position size of the portfolio at the time. So for example, if I’m putting on a $1,500 trade on a $12,500 portfolio my estimate is that’s like 12-13%. That’s the allocation at the market value of the portfolio at the time.
Let me clarify. That comment was probably a little confusing. Because I don’t always have up to the minute information about the portfolio’s value, the allocation number itself is a rough estimate.
I’m basing it on the market value of the portfolio at the time the trade is made. For example, if I estimate that Baratheon is worth $12000 and I put on a $1200 trade, then I estate that the allocation is 10% of the portfolio.
That way people know how much we’re allocating relative to the portfolio size. when I sell a position, I give a “portfolio reduction” number. That’s also based on full portfolio. We’re reducing positions by 12% of the entire portfolio’s value.
Sam, I just want to know why your call-spread is such further in the trading range of current TSLA price. Why not 320-340 Call-Spread instead of 360-380 ?
The $360-$380’s are going to appreciate a lot faster and more explosively one Tesla has its real rebound. There’s a 500% return potential on the $360-$380. It’s wroth $20 at full value. It’s more about that. The 50% retracement of the loss for Tesla takes the stock up to around $380.
Did the 2nd leg down start?
We’re still in the same leg. It hasn’t separated yet. For there to be a rebound, we need to see like 3-5 days of a rebound first. This is all one leg right now.
No rebound. Market keeps selling off more and more
So as we noted in the AM, in yesterday’s post and in the outlook, there’s likely to be volatility. It’s unlikely the rebound will be in a straight line up. Most of it is violent.
Sam we’ve breached 112 is it oversold yet?
No. but I think it’s going to explode higher soon. The QQQ looked really strong to end the day and it put it up above its previous $497 low. that’s huge. So I think we may have missed the window. We’ll see what happens in the morning.
We kind of are taking things a little cautious at the moment.
And here I was annoyed last Friday that I missed my QLD entries. Plenty of opportunity today. Yay!
market rebound… or market collapse
I think we’re about to see an explosive rally soon. Didn’t expect that hammer at day’s end. But it was 100% consistent with what we talked about earlier with the QQQ coming down and testing the lows. But we should got too defensive. Should have bought at the end of the day. We’ll see what happens tomorrow.
Today was more exciting than sexy time. At least for those who didn’t let their portfolio crash with the market, lol
Sam, I’m so glad I liquidated half of my portfolio as you suggested this morning to have munitions for the next leg down. I didn’t expect market would pull down so violently today. Would tomorrow be capitulation day??
I don’t think we’ll capitulate tomorrow. I actually think the opposite might happen. So as we hinted at a little earlier, in August and in other corrections, the rebound doesn’t go in a straight line. Sometimes what you’ll get is exactly what we saw today. A big move up, followed by a smack to the face right back down and more swings. But the market then stays within that range forming a sort of double-bottom.
Well where was the previous bottom? $496-$497. Today the QQQ pushed down hard to $493.58 but hammered back up to close at $497.05. That’s a double-bottom set-up. I think that $4 reversal taken together with the overall situation, we may see a market that gaps up tomorrow.
But I don’t think we’re anywhere close to the end of the correction. I think this is going to be a full-blown real correction and if we play our cards right, we have a potential 100% returning trade at the end of it.
Like done right, Baratheon should come out of this correction potentially at $20k. Targaryen at $10k. Stark and Frey fully invested and deep green on the first leg up.
This is looking increasingly like a real correction. This is what should have happened back in December.
a real correction would put QQQ where?
The two slide-downs that QQQ (and the market) experienced today correlate to the moment of the two communications about tarifs. The first one was about China, the second one about 1h before market close was about Canada & Mexico.
If tarif are active tomorrow as announced then IMO the market would gap down.
Since QQQ got down to a low of 493 today, does the 20 point rebound start from there instead of 497? would the 515-517 target still be intact given what happened today?
So we probably get a little more than 20 now as it’s a larger sell-off at this point. But yes. You count from the low point. Take a look at the Current Outlook page. We outline the previous rebonds there. They usually go fro a little more than 20-points especially the larger sell-offs.
Sam, is there a significance to buying the QQQ call spreads around 3:30 EST? I noticed both today and last Friday, the indexes went up sharply after you got your buys in. Is this a trend that has worked for you? Or perhaps you have a lot of followers putting big money behind your calls!
I doubt my followers are doing anything at all to disrupt market operations. We don’t have enough capital between everyone here to put a ding into anything. Maybe a low float small cap stock if we all wanted to go jail.
But something as large as the QQQ, it would be like squirting a small water gun pistol bought from the 99-cent store at a bullet train lol.
haha
Also, I know lately we’ve been making a lot of trades right at the swing points. This last trade, however, didn’t happen at the lows. After we had put on the trade, the QQQ continued pushing lower for a good 5-10 minutes afteward before that bullish hammer at the end of the day. There was a pretty wide window there.
The Tesla trade not so much. That was a narrow window that stayed open maybe 5-8 minutes. It did hang around the $300 level for a while. We sold near $302.
Hey Sam !
So if I understand it right, once the QQQ bottoms out on the first leg (which might already have happened at the end of today’s session), we’re considering two possibilities:
A (more likely): a ~50% rebound, followed by another sharp(!) leg lower which likely marks the end of the correction, followed by a longer rally to previous highs or above
B (less likely): an immediate longer rally to previous highs, no second leg lower
If in any case, the rally takes way longer / more trading days (on average) than a possible second leg lower (which should unfold in a few trading days) and if your strategy is to play both sides, would it make sense to go for call-spreads for the slower rally upwards, but regular put options (instead of put-spreads) for the potential sharp sell-off downwards to profit more off of the volatility? Or would it at least be a reasonable alternative to put-spreads? If so, would you go for the May puts or a shorter time frame?
A and B are correct. The problem with puts are the same with calls. You have IV crush and theta decay to deal with. Spreads soften both issues.
What’s more, you still get a big return with spreads. Maybe not as large if the market really tumbles. But it’s still substantial.
Thank you for replying, Sam.
So for your strategy, are you going for the SAME expiration date for both call-spreads and put-spreads? If on average the sell-offs unfold faster than the (following) rallies, shouldn’t that be incorporated in the strategy somehow? E.g. a shorter time frame for the put-spreads, if a correction unfolds completely within 15-20 trading days on average?
Thank you again for taking your time to clarify !
Asia opened significantly down.
I’ve heard that 24h market is VERY red but haven’t been able to check it myself.
Pre market could be green and market opens red, or the other way around. It’s impossible to predict the trend.
Can’t see it going up soon unless the tarrifs are removed
Hi Sam – appreciate all of the analysis and work that goes into these posts. Incredibly informative.
I am curious how you are able to feel confidence in an imminent rebound rally when it feels like market sentiment is at a low point (and trending even lower) given political and tariff related actions. Do you believe a rebound rally is decoupled from sentiment? It feels there would need to be a catalyst for a rally outside of technical indicators.
yes. Very much so. Check the Covid crash as a prime example. The market was gearing up for 20% unemployment and sentiment was as negative as could be and we started rallying anyway.
Financial crisis had the worst sentiment I’ve ever seen. The market sentiment was that the U.S. might collapse. The dow rallied 1,000 points (10%) in a single session anyway.
This is not necessary for either a mere rebound or a full market bottom. The entire market WILL bottom for sure before there’s change in sentiment. The sentiment won’t change until we start rallying. It never does. The market will bottom at peak negative sentiment i.e. capitulation.
Hold this thought and note how this correction ends.
Makes sense thank you! It’s certainly interesting to think of sentiment more as a n “effect” than a “cause”
(Not my review, copy-pasted from someone else’s post on AH)
Some history from the trade war of 2018
Trade War-Related SPY Drops in 2018:
October 3 – October 11 (~6.7% drop)
Trigger: Escalation of U.S.-China trade tensions and Fed rate hike fears.
The U.S. imposed new tariffs on $200 billion of Chinese goods, and China retaliated with $60 billion in tariffs.
Fed Chair Jerome Powell signaled more rate hikes, spooking markets.
This was one of the biggest trade war-driven selloffs in 2018.
December 3 – December 10 (~5.45% drop)
Trigger: Failed U.S.-China trade truce at the G20 summit.
Trump and Xi met in Argentina and announced a temporary ceasefire, but markets saw it as vague and uncertain.
Huawei CFO Meng Wanzhou was arrested in Canada at the request of the U.S., escalating tensions.
This led to another sharp selloff.