Samwise Quick Reference Handbook
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thanks Sam. great stuff as always. any updates to your thinking around the potential bear market playing out vs a more standard rebound to ATHs sooner? or too early to call? saw your posts last week just wasn’t sure if any analysis or thoughts over the weekend gave you updated thinking one way or another
It’s way too early to make that call. The whole point of even bringing that up at all is to plan ahead for our long-term portfolios. The short-term trading is all going to conclude way before we get to the point where that matters.
Here’s why. Look at this leg down. This leg down might represent the start of a bear market or it may just be a regular correction right. They both play out hte same exact way. There’s almost nothing different about the way it will unfold.
The key difference is that one the market does sustain its 10% rebound off of a 30-RSI, we get a peak and another big leg down instead a full rally back to all time highs. That’s the difference. A bear market could be thought of as several back-to back corrections and rebounds until we reach a low point.
As far as planning is concerned, what we do is put on hedges once we’ve reached some key levels on the rebound and then sit back and wait. There’s no way to determine whether the market will continuing back toward its highs or whether it will sustain another leg lower.
What we do know is there will be a massive rally in-between those two points. Just like we saw in 2008 F.C., 2018 small bear market, 2020 covid and the 2022 bear market which was like 5-legged,
Once the QQQ pushes up to around $490 we’ll start thinking about hedges across our long-term portfolios. Most are already well hedged and prepared. But there are a few loose ends to tie. Like for example, in Lannister, there is no hedge on Nvidia. There are things like that we have to do.
We recently made purchases in Frey and Stark. We’ll need to hedge those new positions. The previous positions are already hedged.
But again, bear markets are very slow moving long-term things. They don’t play out overnight like a correction and ensuing rebound. They sort of sneak up on you.
For example, in 2022, there’s no way to know we’re in a bear market until the market rebounds 10%+ and then sustains a second major leg lower putting us down at 20%+.
The way to address a bear market is to hedge out positions and then make shifts as the market reaches critical oversold levels or retracement points.
I still think the overall odds are low mostly because the QQQ previously peaked ahead of the previous bear market at $408 a share and the highs of this bull market would be $541. That’s way too shallow. That’s only a 32% new high. Look at previous bull-bear peaks, and that gap is way way wider. So I don’t know that we’d experience a 2022-style true bear market. It’s just too close in both time and price to the previous market peak.
Hi Sam. you’ve mentioned about hedging for thr long term portfolio. What is the plan for the short term trades like the call spreads? Are you expecting the QQQ to go above $425 by May 16?
we’re going to close it before we ever get to may 16. We’re going to ride out on the rebound. I’m hoping we’ll be able to trade out of the $525-$535 call-spread near $2.60 to $3.00. With the drop in volatility, it may be a lot closer to $2.50. But that’s our expectation right now.
And then we’ll completely reposition with new trades altogether.
If the QQQ manages to rally to $505 in the next 10-sessions, the $525-$535 call spread should be trading at around $3.05 and the $540-$550’s should be at around $1.35 to $1.40. we’d close all of those out and they’d all roughly off-set or might be slightly in the green. we’d then be looking at a strangle. that we’ll determine as we get closer to making the trade.
any chance that nvda gaps up tomorrow from GTC after todays slight selling? Keynote for next generation Rubin is tomorrow
That’s typically a sell the news type event. Especially seeing as how Nvidia has surged right off of its lows and far outperformed the market.
but with the stock down overall from its all-time highs, it’s possible it runs after the event.
Hi Sam,
You mention this in today’s article
Similar to how you’ve created a table for corrections and QQQ 30-RSI events have you performed any analysis on trend changes caused by Fed meetings? Would be interesting to see if there are any statisically significant correlations that can be made here.
Not a table. I used to have a chart and used to follow other users that had charts on the fed trend shifting events. I’ll try to locate it and post it. I think if you google it, you’ll probably find a google image of someone posting a chart that overlays the fed decision with the trend change in the market.
There are a lot of instances where it leads to continuation, but we’ve seen a lot of notable cases where it has clearly topped or bottomed the market. Let’s me see if I can track it down
Here’s a table I kept track of recently. I didn’t continue with it. I’m going to dig for more.
I updated the one below. Note, there were two very similar sets-ups at the end of a correction like we have today. The market rebounded off of the lows a few sessions going into the fed and then just took off right after. We also have the August correction which continued with the fed.
Interestingly, the July – November 2023 correction stated and ended with the fed. The absolute peak and absolute low happened within 2-3 days of the Fed.
Notice this is just recent. I’ve known this trend for years. Years and years.
This is super informative. What makes the August 2024 setup different than the other two that you highlighted?