Samwise Model Portfolios
The portfolios below are separated by launch dates. Each portfolio is entirely independent and has no bearing on any other model portfolio. We launch entirely new portfolios during each market correction as an illustrative tool for new subscribers who weren't present during...
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Hello Sam, I no longer follow you…I understood in your last post with the graphical and technical analysis that NVIDIA was going to revisit the $115 zone before the publications before making a rally towards $150-160 afterwards and here December. now I understand that finally NVIDIA is going to make a rally in pullback?
Hey Karl — so you’re probably referring to the risks to Nvidia we outlined in this post here on Friday, October 18:
https://sam-weiss.com/daily-briefing-the-market-key-stocks-all-at-inflection-points/
The point of that post last Friday was to outline the fact that Nvidia normally breaks out on earnings. Not in the middle of the quarter like is happening now. Going into last weekend, our general near-term outlook was uncertain for Nvidia. Here’s what we wrote in the post:
OUTLOOK: As I see it right now, a breakout ahead of earnings is straight toss up. We won’t know until we get a push back and breakdown under $130 or a push through $140 resistance and run to the high $140’s. Once we get one or the other happen, then we’ll have some clarity with Nvidia as to its near-term direction.
The point of the update regarding Nvidia’s historical consolidation ranges is to simply highlight the fact that with earnings being a month out, a breakout to $150-$160 seems more likely to occur on earnings than ahead of it.”
That is all still very much true. Not one bit of that has changed. Until Nvidia breaks out above its $140 resistance or until it breaks below $130, there’s no clarity at all near-term. That’s generally the case when a stock/index/market reaches key resistance. No different with the NASDAQ-100 as well. It’s still in no man’s land until it busts through $500 or falls under $485. Until we get a breakout or breakdown, we don’t have a firm outlook for Nvidia beyond saying that it’s likely trading north of $150-$160+ after earnings or as we head into January. That has been our firm outlook since August and it hasn’t changed. It’s why we’re fully long and hedged.
—-
What you’re seeing on October 18 is an outline of one major risk factor to Nvidia’s near-term direction. The fact that Nvidia historically breaks out on earnings coupled with the fact that it has struggled with all-time highs– even all last week — is a major risk factor.
That hasn’t changed. It is still a big risk factor for Nvidia longs that Nvidia has’t taken out its $140 resistance.
But it’s important to keep in mind that our overall OUTLOOK for Nvidia is that the stock will breakout to a new trading range north of $150 sometime between now and January and probably a lot sooner. That is our core outlook. Last week’s trading action further supports that conclusion.
Could Nvidia see a sharp pull-back between now and earnings, yeah. Has that happened historically at this point going into earrings? Yes. It has. We usually see one more large pull-back and then a big 2-3 week run into earnings.
RISKS TO OUR OUTLOOK
Again, we’re fully committed to the long side of the trade right now and we’re hedged. Given that point of view and our positions, we outline risks to the our outlook in the daily briefings. And there are several risks and potential pitfalls for Nvidia between now and when it reports and even after it reports earnings. But those risks aren’t the same is our outlook. Here are the current risks:
Risk #1: Gap in time between now and earrings.
With Nvidia (NVDA) normally breaking out on earnings as we’ve seen in the chart attached to this comment and to our October 18 daily briefing, there are 5 trading weeks for Nvidia to see a sharp pull-back before earnings. The place Nvidia is most likely to see a breakout is on earnings.
That stands as the biggest risk right now. That hasn’t changed much either. Let’s say Nvidia does breakout to $150 next week for example. I still doubt Nvidia makes a lot of forward progress until it reports earnings. And this will act as a headwind for the next 3-4 weeks.
Risk #2: NASDAQ-100 (QQQ) struggling with $500
The second biggest risk is that the NASDAQ-100 is struggling with the $500 level and if it reverses course off of that key resistance point, then it’s going to put downside pressure on Nvidia leading to another sharp pullback ahead of earnings.
Risk #3: S&P 500 may soon be due for a correction
As we explained last week, the S&P 500 has been in rally mode for nearly 3-full months now. That puts the S&P 500 closer to an intermediate-term peak from a time perspective. If the S&P 500 does end up peaking, that puts pressure on Nvidia.
Risk v. Outlook
I can’t stress enough the importance of differentiating between risk and outlook. These are just risks. The trading action in Nviida last week decreases the probability that Nvidia will see a larger pullback because we’re running out of time here. If Nvidia had failed to trade above $140 all last week and if it closed out the week at $135 or below, then the risks of a larger pull-back would persist. But given how it traded last week, I think the risk for a larger pull-back ahead of earnings has dropped considerably.
Our updated outlook and expectations are always going to be posted in the most recent daily briefing. How Nvidia trades during the trading week can alter those risks and expectations. So you have to keep that in mind here. Nvidia spending a good portion of the week trading either directly above or directly below $140 alters the risks.
Thanks for this comment by the way. It has gotten me to see an issue in how I’m delivering information. We’re going to make some big changes on how we run the daily briefing thanks this comment here. We’re going to improve the delivery of our outlook so that it’s very clear by including an “outlook” section to the daily briefing. I went back and read my last 5-6 daily briefing and I can see it’s very easy to lose sight on what our outlook actually is.
But we’ll fix that.
Thanks Sam, it will be really appreciated.
So now you don’t know if pullback will visit 115-120 zone ?
Is it possible to see 105-110 zone ?
We Can sée pull back between 12% and 20% recently.
10th July : 134
31th July ,: 117
27 august : 128
6th september : 103
18th september and 1st october : 117
Best
Karl
Hi Karl – I think for Nvidia to go down that far we’d need to see a bad earnings report or a major market correction.
At this point, I don’t think so. That’s because Nvidia has already tested those levels TWICE before. First time was from $140 down to $90 (July-August correction) and in September from $130 down to $100 (September correction).
Market only gives so many chances before it goes ahead. Need the market to sell-off for Nvidia to fall that much.
Nvidia last week was too strong also. With Nvidia going to $144 this past week, it makes it LESS likely for a drop down to $115.
I think the MOST nvidia can drop is to $125. But even then, I think not likely.
However, after this rally ends and a new correction happens, we might see a big sell-off like July- August. But we won’t know how big until we have a top price.
Hey Sam,
I just reread your chapter III on Hedging etc. In it you write:
“If the goal of the hedge is to protect against an actual large 30%+ downturn and nothing else, then a much better hedge overall would be to purchase deeply out of the money put-options. If Olivia is not worried about hedging out a relatively more minor 15-16% correction, but is only looking to mitigate the losses bought on by a real downturn of 30-40% crash, then an OTM put-spread is a far better option.”
Did you mistype here? because I cant see the distinction between the two risk scenarios you lay out here, which would then call for a different kind of hedge?
Yes that’s a typo. Thanks for posting this. I’ll update here once corrected.
Okay. Here’s what’s going on here and that should be worded better. I’m going to expand on that so it makes more sense.
With put spreads, there’s a hard floor on how much protection you get. In the hypothetical we gave, Olivia only gets protection down to $350 a share. Below that, she gets no protection. So she’s only protecting against a maximum 30-40% down.
Open-ended leaps give you TOTAL protection. If the QQQ drops 70%, you get protection all the way down to -70%. If it loses 100%, same thing.
The put-spread is cheaper, but you’re maxed out at -40% down. It’s more in line with “reality,” so to speak. It’s rare for the QQQ to lose more than 40% even in a bear market.
And when it does happen; the QQQ typically recovers very quickly. While it did drop 57% in the financial crisis; the reality is that it spent almost no time down that much. Within a few weeks it had recovered a big part of that.
So that’s what’s going on in the paragraph. Also open ended leaps appreciate in value better in a correction. They will go up in value a lot more in a near term correction than would the spreads.
I fixed it. It’s fully re-written to reflect the right thought process. Thanks again for letting me know.
Thanks Sam!:)