Samwise Quick Reference Handbook
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Hi Sam,
Could you elaborate on these statements:
It’s not clear to me how you’re determining the $555 and $550 levels to be significant. What do they represent? Looks like the 50 day SMA on the QQQ daily chart sits at $562 so it can’t be that. Is there a technical component to this analysis that is being inferred and I’m not seeing it? You mention this is “standard stuff”, but maybe some extra detail for the not-as-technical savvy readers would be greatly appreciated!
Thanks!
Okay. So let’s start with $555 and why that’s significant. The QQQ peaked at $574, pulled back 4% down to $550 a share right? That was the first major 4% pull-back after the 4th segment. It then bottomed at $550 (thereby creating a major line of support) before then rallying to its ultimate highs of $583. From there, it then sustained another 4% pull-back –except this time it bottomed at $559 before ultimately rebounding back up to $578.
First of all, a rebound up to $578 means we have our first lower high. That’s significant in and of itself. The QQQ just pulled back 3.3% without having made a new high at all.
But here’s why $555 is important. It’s important because we have a technical breakdown if the QQQ manages to fall under $558-$559 a share. But a small breach of that $559 level (the lows off of segment 5) isn’t enough. What would be enough is a surge down near $555 with the QQQ actually closing near those levels.
it signifies to the market that the QQQ just lost its prior support at $559/$560 which occurred after the 5th segment.
Technically speaking, that happens, we’re in correction because we’d have both a higher lower and a lower low.
the key levels of support at $559/$560 (previous lows set after the QQQ peaked at $583) and $550 (the preceding lows after the QQQ peaked at $574).
$555 just shows prenetration under the $560 support zone. What’s more, on the chart we get that very heavy big red bars we typically see at the start of a correction.
In terms of low points, the market is going to look for low points at previous support levels. That means gaps and moving averages. So $530 gap and 200-day moving average. That conforms with pull-back size. Those are the logical places for the QQQ to go.
Down 10% from the highs is $524. Down 8% is $536. 200-day moving average sits at $517. Gap to fill at $530. Any of those areas makes sense for a low.
Hi Sam,
In response to your 1:32 PM update:
I took a look at the options pricing for the QQQ 530-520 put spread on optionstrat.com and looks like if we exit at $560 then we’d be taking around a 10% loss on the position instead of breakeven? Looks like the breakeven point would be more like $558/559. Am I misunderstanding or running the calculations incorrectly?
Thanks!
10% is minor on a 3% position. Still worth potentially exiting. Consider for example on Arryn, we’re talking less than $1k on a $240k portfolio. The position is worth about $7k. Totally worth exiting to preserve a potential $2-$3k of draw down. Especially when we could then take that capital and use it toward an October spread or use it to add to the October $550-$540 spread which I’m liking a lot more.
Like we don’t need to be precisely at even. Just close enough for it to make sene. AT this point, it’s moot. We wouldn’t close it at $564.
If we’re going to close it, it would need to be at a price point close enough where we could potentially buy back if the QQQ goes down the same path it did back in April. The lower the exit, the more likely it is we could buy back even if the QQQ went into a correction right after.
So for me, we need to see the QQQ near $560 for me to consider it. Otherwise, our plan is to add our third position on any bounce from here.
If the market bounces from here and somehow manages to get back up to the $575-$578 area again, the correction chances skyrocket. We’ll have been deep into consolidation at that point and so we’d be more aggressive to buy another position at that point.
If we can exit ahead of a bounce, that’s fine. If not, we’ll still capitalize on the opportunity.
It looks like we missed the chance to close our Sep $530-$520 spread. With today’s QQQ closing at ~ 565, is this a strong indication of rebound or lack of thereof?
Is there any way to know if today’s intra day rebound is fueled by institutional or retail investors? I imagine institutions have a better read of the macro stock market trends; would institutions risk jumping in know a correction is soon underway?
$568 after hours, almost full $10 off today’s low
As of right now Google is up $17.00 and Apple is up $8:00. it looks like nothing can stop this market. QQQ up
If ya can’t pump the markets with country-level trade deals, you pump it with deregulation for the largest companies in the index. Lfg!
Hi Sam,
Does this mean you’re expecting a more moderate sized correction since $583.32 -> $532 is around a 9% correction? Or is that more of a worse case scenario as it’s lower end of the correction range? I remember you mentioning the correction possibly dropping all the way down to $515-520 range, but maybe I’m remembering wrong.
Thanks!
Bull Trap!
Definitely got smacked at that uptrend channel resistance/former support. Market is currently indecisive.