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Why not just make trade for negative direction considering May or June we will see another bottom if not now, instead of having puts for hedgeing
From the perspective of long term portfolios, a few reasons not to sell and repurchase could be taxes where if the purchase of stock is spaced larger than 30 days or so from each other it could be taxed as gains. I would imagine even selling a position to reduce disk on stock or options is also considered a constructive sale. Another reason could be the movement in the market is shorter for going down and longer for going up. it makes timing difficult and if you notice how much we discuss short term buy and selling in trading portfolios you might not want to do that in the long term ones. All of this is not financial advice or Tax advice.
The arguments are outlined in Chapters 1-3 of investing basics and in the “strategy” section of the website, if you want a more comprehensive answer as to why, read those sections.
Here’s a basic tl;dr answer:
There are HUGE reasons to never trade out of a long-term long stock or option position. If you look at most funds, they rarely ever go to the sidelines. That’s because the opportunity risk is immense.
Consider this. Right now, the QQQ MIGHT see another leg down or it may not at all. We don’t know for sure. There’s strong evidenced in support of that conclusion, but it’s not remotely close to certain. We can very easily bottom and then rally back to the highs.
So let’s say it’s even 70-30. 70% chance we have a second leg down and a 30% chance we just rally to the highs.
If you’re wrong and it’s the 30% scenario, you’re now on the sideline and in an UNRECOVERABLE position. The market can take off and never return to these levels again. Very easily. And now if you’ve gone to the sidelines, what are your parameters for getting back into the market? That’s the biggest issue right there.
Now consider the alternative. Worst case, if the 70% proves true and the market sustains a second leg down, so what? The end result of that is we’re just going to rally anyway. Suppose for example, the QQQ rebounds, peaks and then falls again in May down to these lows or lower. Suppose the QQQ rallies to $520, peaks and then crashes back down o $450 or something like that.
The overall final outcome at the end of all of this is the market ends up going to all-time highs anyway. It likely bottoms on the second leg and then rallies back to the highs. Your positions are back to deep green.
Now let’s suppose we even go into a bear market. Something that is extremely rare. We’re talking 2% of all corrections lead into something bigger like a bear market. The odd are probably even less than that.
The way you protect against a bear market is what we’ve done in the long-term portfolios. We’ve hedged our positions such that if we do end up entering a bear market, we will be JUST as green as we would if the market rallied.
If the QQQ falls 40%, the Arryn & Lannister Portfolio will end up deeply positive. There’s a point at which our short position outstrips the long position and we start producing returns.
The way professional investors do it is they get long because the overall long-term risk is to the upside. They hedge out bear market risk and don’t worry about corrections.
The irreversible damage in this scenario is the market rallies and we see no second leg down. Hence why we DO NOT touch positions in the long-portfolios. We use sell-offs as an opportunity to get long. We use rallies as an opportunity to purchase protection for cheap.
All it takes is being wrong one time about the market going lower and you’re priced out of the market. That’s why we don’t mess with our long-term positions.
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Trading wise, you close out positions on the rebound and then go into a strangle. That’s what we’re going to do. When the market retraces roughly 50%, we’ll go both long-short in trading portfolios.
Sam thanks so much for your input, knowledge and wisdom.
My question is when would you want to add Apple to long portfolios.
we already have and are fully invested. We went long Apple between $200 and $220 in all of our portfolios.
So would now be a good time to add for those who weren’t on board at the time?
I can’t answer that. But I can say this is where we entered Apple and that we generally make our long-term purchases when stocks drop 10% from their highs and the QQQ is down 13.7% from its highs. We wouldn’t be holding Apple if we didn’t believe in its ability to constantly print billions of dollars a year in cash.
Look at the correction table and the RSI table and ask yourself whether in the grand scheme of things the market is likely to bottom somewhere around these levels.
Read investing basics or the Strategy section of the site. You can make pretty simple inferences from there.
Yes. Of course we would. For all the reasons we’ve outlined in investing basics and strategy. As a long-term investment, everything is super duper cheap right now. Everything. And especially the high quality names like Apple.
Hold the line!!!
“Sarge?? It’s gettin dark…”
Really interesting to see when this rebound will come and how it will look like.
So far Trump seems unfazed by the tanking markets and not in a hurry to help or even just shut up for a few days.., every da he comes out with some other crap..
Sam – I appreciate that you try to separate the news and noise from the data / history. But a question right now. Market is down 1% on positive CPI and PPI data. If the government shutdown actually happens tomorrow, I just don’t see any rebound in sight. Seems like the leg could just continue down and deeply. How do you think about this?
Hey sam is it time to buy NVDA? It seems like it may have bottomed? It performed pretty well today, basically flat despite a crashing nasdaq. Seems like a good sign?
We bought the July call spread at $110. We made a statement in the daily briefing regarding Nvidia.
We stand behind that conclusion. Today’s daily briefing is very short into the point.
I think what we’ve seen over the past two weeks tells us everything we need to know about the demand side of the curve between $100 and $110 share in Nvidia.
Personally, I think Nvidia has bottomed at least in the near term.
Like I don’t think we’re going to see any more lows in Nvidia before the market rebounds if we have a second leg down, Nvidia might make a new low, but I don’t think it’s gonna go substantially lower than the $105 lows we saw this week unless we have a bear market. It will take a near bar market to push Nvidia under 100.
As a normal correction goes I don’t think Nvidia is making new lows. And in reality when people look back at this period, they’re gonna say holy crap this was a gift. No different than everybody looking back to $90 a share in August.
Nvidia has no business at all trading down here. And in fact before we even came down to these levels, I stated repeatedly that this is how it would go with Nvidia. The stock was going to find heavy support down in the $100-$110 range.
Down 2% on the NASDAQ 100 and it’s closing green. That’s pretty nuts when you think about it.
Hello Sam,
I understand that NVIDIA will rise in the coming days (a 5-day rally since March 11th, so until next week) to $125-$130 before dropping back to $105-$110?
Sam ?
Oh sorry. Didn’t see this. We have a new briefing today.
So as I’ve mentioned to a few other people now, and as I’ve mentioned in the daily briefing itself, Nvidia is unlikely to make new low.
For that to happen, we need a much larger correction as the stock is already showing tremendous amount of buying support at $110.
It would take a lot of bearish for the stock to go back down to its lows.
I’m expecting the stock to go up to 130 sometime in the next week or two.
After that, I don’t think it comes all the way back down to 105. Maybe if we have a big enough sell off in the market.
Nvidia told you yesterday that it does not feel comfortable being down there near 105. We had a big sell off in the market yesterday and Nvidia was green.
I think more likely it comes down to 115 in the second leg down and maybe $110.
Thanks so second leg is possible again…
So you sell at 130$ and wait to buy again at 110$ long or option ?
150$+ in May with Computex and reports ?
https://www.computextaipei.com.tw/en/news/E4A4FCA512B81F26/info.html?lt=data&cr=1
Best
Karl
Sam ?
Update ?
The second leg down is ALWAYS possible. We just won’t know if it’s going to happen until we see the full rebound as outlined in the daily briefing. We have to wait for the rebound before drawing conclusions.
Couldn’t help but add some more AAPL to common stock and Jan 2027 calls. It’s looking so juicy today.
On March 13 we closed at $NYMO = -58. It is moving down very slowly. It seems to take forever to reach -100.
But according to rough estimates, it would only take another 2% down on SPY to reach this zone. Do you agree? QQQ being slightly higher alpha than SPY, this 2% would perhaps represent 457-458 ?
However, doing a linear regression on NYMO shows that it would take much, much more than 2%. I think it’s because the downtrend doesn’t touch the market as a whole. There are too many outlier sectors, so it’s going down very slowly.
P.S. With the linear regression method on NYMO, then QQQ would need to go down another -9 to -10% from where we were yesterday, that’s 392.
That’s not how the $NYMO works. the $NYMO could fall to -100 in a single day with a -1.76% down day. It’s not correlated how much the market is dropping. It’s based on how broad based the selling is. It’s a measure of just how bearish the selling is across the entire New York Stock Exchange by comparing advancing stocks to declining stocks.
It moves lower when more stocks are declining than advancing, and it rises when more stocks are moving higher. A drop to -100 or lower indicates extreme selling pressure, meaning that a large majority of stocks are declining at the same time. This typically occurs during broad market sell-offs, corrections, or crashes when panic selling takes over. The McClellan Oscillator is based on a moving average of net advances and declines, so when the market experiences a sharp and sustained decline, the NYMO can quickly drop to extreme levels. The indicator reaching -100 suggests that the selling is reaching exhaustion, as such deeply negative readings are relatively rare and often precede a market rally.
It’s also important to note that when the $NYMO does reach -100, it almost always means three things at the same time. First, that we will see a massive rebound the next day. Second, we likely see a retest of the lows afterward — if there’s no capitulation at the same time. Third, the market is right at a bottoming process and gearing up to rally.