Samwise Model Portfolios
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See 12:30 update on Nvidia.
Thank you for the insights, are there any reasons that we would expect a 3-4% pullback in the near term rather than a 8-10% correction? The reasons I would think of are the strength of the recent trading action and also the typical santa rally, but would love to hear your thoughts.
We could get a straight correction. It has happened a number of times right off of a peak without warning whatsoever. Historically speaking, when looking at markets before this recent bull run that began in 2022, the QQQ used to go through this complex topping process where it would end runs over a pronged period of time. You’d first have a peak, a pull-back, then a retest of the highs, followed by another pull-back etc.
There’d be times where it would take a full month or two for the QQQ to form this complex top before we’d have corrections.
But in this current market, we’ve seen virtually every recent correction happen right off of a top. Look at the July top. The QQQ was making fresh all-time highs one day and crashing the next. It went from full blown buy momentum to full blown sell momentum.
So yeah that can easily happen here. But I do think it’s more likely to occur in January as December is typically a bullish month for stocks seasonally speaking. The Santa Rally is pretty consistent.
Even in the 2008 crash, the market rallied all the way up to the first days of January 2008. With big traders going on vacation and with volumes coming down, we tend to see volatility pick up in January.
Also, when looking at the number of trading sessions between corrective periods, I think mid-January marks the point where we would normally see a correction.
The November 2023 to April 2024 rally lasted just over 100 trading days. The one before that lasted 89. The May – July rally was more explosive, but much shorter.
This one is substantially weaker, but more prolonged. That’s the sense I get. So while a correction can start at any time now, I think we’re more likely to limp into the new year first.
So maybe we get a peak at $530, a pull-back to $510, another rally up to $540 or something and then a top. It might go something like that.
Moves like that would take us to around January 7th following the typical cycle-trend. The number of days it would take to go from $520 to $530 down to $510 and back up to $540 would take us to that second week of January.
I could be wrong but I don’t think we’re going to have any meaningful pullback until January. Why would people sell and take profit now, and pay the capital gain taxes? Why not wait until January to sell, and defer the taxes for another year. It makes no sense to sell right now. I think the market is heading higher until January and first trading day of January market sells off.
Hello Sam,
I admit that I am lost with the latest publications and it is not getting better.
Let me explain: in your last analyzes you talked about the pullback on NVIDIA in the 120-130 zone on several occasions and in particular a very probable future drop.
Now, you no longer mention this at all in the short and medium term and you say everything and its opposite in the same week…
I’m disappointed because I’ve been following you since August and I see less clarity in the directions to take.
Also, I commented several times on my analysis with a bullish bevel and got no response.
The SP500 is on its long-term oblique resistance + bullish wedge: it will inevitably consolidate on these levels! (target 5800).
Thank you for your analysis and your feedback.
Carl
Let’s review where Nvidia was trading at the end of November (nov 27) and how things changed in December.
In mid-November, Nvidia reported earnings. Earnings were pretty flawless across the board. The stock pulled back anyway. In fact, it fell from a peak of $152 down to a low of $131.79 on Wednesday, November 27. The stock reached deeply oversold territory. This was the trading day before Thanksgiving.
When Nvidia dropped to $131.79, we were strongly considering buying it. We had it on Trade Watch to buy the Feb $130’s at $12-$13 and if it had fallen to $129-130, we would have bought long that day. See here:
https://sam-weiss.com/nasdaq-100-qqq-promptly-begins-a-new-leg-lower-as-expected-another-short-term-buying-opportunity-could-soon-emerge/
At the time, there was a high degree of risk in the entire stock market across the board. The trading action at the time was very choppy and as we showed, historically that type of trading activity preceded more downside. There was some limited risk for a correction. A lot less of a risk of a correction than there was the prior week. But there was still some risk that we could see a correction early.
So there was a lot of risk at the time that Nvidia could fall under $130. Especially seeing as how it fell all the way down to $131.
Worse yet, unlike Nvidia, the QQQ was not even oversold yet. If you look at the November 27th trading session (link above), take a look at the QQQ chart. It’s not even oversold indicating there was more downside ahead.
Now if the QQQ continued lower toward oversold territory, that would have put additional downside pressure on Nvidia. That’s actually the only reason we didn’t immediately buy at $13 when we put on the trade watch. Had the QQQ been oversold, we would have bought Nvidia. And had the QQQ fallen an additionally $2-3 back under $500, we would have bought back our January $500 calls in the QQQ (also on Trade Watch that very day).
But the QQQ not yet being oversold is why we held off buying Nvidia at $131. If the QQQ were also oversold, we would have bought 1 contract in the Nvidia February $130 calls at $12-$13. Note the Trade Watch.
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What happened by mid-day November 27 and what changed in the days that followed?
The QQQ caught a massive bid and turned the entire trading action around. Instead of choppy trade like we had been seeing, the QQQ completely turned things around. When you look at the hourly chart, that’s a first for the QQQ in at least a year. The QQQ does’t normally go from choppy trade right into heavy buying. But that’s what we got. The QQQ moved up toward $515 in a straight vertical line.
Furthermore, Nvidia bottomed off of its first instance of oversold conditions at $131 and rebounded $15 as we’ve seen historically. If you look at the last FIVE (5) times Nvidia reached oversold conditions on the hourly, it rebounded $15-$20 EACH TIME.
The risk conditions Nvidia faced on November 27 no longer exists. Nvidia is no longer at risk of falling under $130 at the present moment.
When the next market correction happens, Nvidia will be at high risk of potentially falling under $130 because Nvidia tends to fall 20% on corrections. But at the present moment, there is no present risk of Nvidia falling under $130 anymore. That went away the moment the QQQ rallied to $515 and then to $523 this week.
The near-term outlook and risk is constantly evolving depending on the circumstances. For example, right now, the risk for Nvidia is this. (1) Nvidia is now overbought. Historically speaking, when Nvidia goes overbought, it has tended to pull-back anywhere from $8-$13. That’s a consistent trend. (2) The NASDAQ-100 is also overbought and will soon go through its regular 3-4% pull-back cycle. When that happens, it is bound to put selling pressure on Nvidia.
Intermediate-term: Nvidia likely moves higher with the market until the market ultimately peaks in January. After this next pull-back coming next week, Nvidia & the entire stock market likely rallies all the way until mid-January. That’s where we’re at right now.
The November 27 risk set-up is gone and went away the moment the QQQ completely turned around.
Thanks Sam.
So you don’t see pullback before january ?
What about carry trade risks like 5th August if Japan Bank rises rates ?
Do you agree with this analysis, particularly in relation to the impact of the upcoming carry trade like last August 5? If rates in Japan are positive again, they should not exceed 1%. With the arrival of Trump, rates have risen to 4% in the United States and the president of the central bank has just declared: “The economy is not sending any signal that we must hurry to lower rates.” Trump’s policy is seen as inflationary which will cause rates to rise. The differential between Japanese and American rates will instead increase, which means that the carry trade will be even more profitable. There is currently no risk of a crash between now and the end of the year and a more or less significant stock market drop could occur if Trump disappoints, which will eventually happen.
The yen carry trade certainly plays a role in driving currency moves, interest rate differentials, foreign investment demand and overall capital flows. But the buy-side demand it creates is too undetermined to use as a forecast tool to consistently predict broad market directly reliably. While factors like the yen weakening against the dollar and rising U.S. rates suggest more carry trade activity and stronger buy-side demand, the overall SPY/QQQ/Nviida impact is heavily influenced by a range of other factors, such as global risk sentiment, U.S. flows and economic conditions.
There are always any number of different supply or demand side variables at play at any given moment. The yen-carry trade is one such factor. We try to cut through all of that by targeting the heart of the issue. And this what the technical action is telling us and what the market cycle suggests.
We consistently see the same repeated cycles regardless of supply-demand dynamics in the market place.
Like right now, regardless of whatever happens in the month January, the market is likely going to peak based on the analysis set forth in today’s daily briefing. When it comes down to it, the duration of the rally is the single most reliable indicator for forecasting a peak in the market. And maybe it happens sooner in December or a little later in February. But we do know it’s happening really soon.
We do see a pull-back before January. Pull-back next week. Just not a correction.
Well let me say this. The market has entered a period where a correction can really happen at any time now. That’s the truth. The number of trading days has now reached a point where, if a correction did happen, I wouldn’t be surprised. I wouldn’t think, “what’s going on here? Why are we correcting?”
Everyone should be on “correction watch” right now.
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I just think from a probability point of view, the month of December is generally very positive for stocks. With it being as positive as it normally is — and with January often being a correction month after a long rally in tech — I think we’re just more likely to see a correction in January instead of December.
But there’s a general increased risk of a correction right now across the board due to the time-cycle.
Also, it’s not as if this entire rally since August/September has been very strong.
With the markets likely pulling back very soon due to overbought conditions, it’s very possible that we could see the selloff accelerate into a correction right then and there.
If we’re only at 30-trading session, that same risk doesn’t apply. It’s because we’re sitting here at 80+ sessions on the S&P that there’s a general heightened risk that a correction could happen at any moment.
Timing wise, I think January due to strong seasonality in the month of December. Go back and look at how many Decembers we have corrections. It’s rare. Especially compared to January.
Several stock market crashes or notable corrections have occurred in December throughout history. The one in December 2024 recalls the conditions of December 2018, marked by the US-China trade war.
Here are a few examples:
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1. The Great Depression – December 1931
In December 1931, roughly two years after the infamous crash of October 1929, the market was still experiencing significant turbulence due to the prolonged effects of the Great Depression. The Dow Jones lost nearly 15% in December 1931 amidst a backdrop of bank failures, rising unemployment, and plummeting industrial production.
This continued the downward trend of the Great Depression, fueled by a liquidity crisis and a collapse in investor confidence.
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2. Dot-com Crash – December 2000
The tech bubble, driven by the high valuations of internet companies, burst in March 2000. However, the market continued to decline throughout the year. In December 2000, the Nasdaq dropped by about 8%, extending the year’s significant losses (the Nasdaq fell by 39% overall in 2000).
The losses in December 2000 were due to a loss of investor confidence in tech companies, many of which had fragile or nonexistent business models.
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3. 2008 Financial Crisis – December 2008
December 2008 marked the end of a year dominated by the global financial crisis, triggered by the September collapse of Lehman Brothers. Although the S&P 500 rebounded slightly in December, the index lost about 37% over the entire year, with panic selling and mass liquidation continuing into the year’s end.
Stocks continued to struggle due to bank failures, drying liquidity, and the global recession.
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4. European Debt Crisis – December 2011
In December 2011, markets faced heavy pressure from the eurozone debt crisis, with fears of default in countries like Greece and Italy. While December 2011 didn’t see a sharp decline overall, there were sporadic sell-offs early in the month and heightened volatility due to economic uncertainties.
The European Central Bank intervened in December, injecting liquidity that temporarily calmed the markets. However, 2011 as a whole was volatile, with significant corrections across European markets.
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5. December 2018 Sell-off
In December 2018, U.S. stock markets saw a sharp decline, with the S&P 500 losing around 9% and the Nasdaq over 9%. Several factors contributed to this drop, including concerns over the U.S.-China trade war and expectations of Federal Reserve interest rate hikes.
This mass sell-off made December 2018 one of the worst months for U.S. markets since the Great Depression. However, markets recovered quickly in early 2019.
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Conclusion
While December isn’t as historically associated with crashes as months like October, it has seen significant corrections during various financial crises and periods of heightened volatility. Investors might exercise caution at year-end, as this month often witnesses portfolio adjustments, tax-loss selling, and exacerbated economic uncertainties.
You forgot to add December 2022 which was also pretty awful. But a few things I’ve already noted in today’s daily briefing. The month of December follows the trend for the year.
Notice the trend here? However the market is performing on the year usually determines how that December will play out. Tax loss harvesting is the main issue. If there aren’t major losses to harvest, there’s no selling. As goes the year, so goes December.
By the way, these comments are all from personal memory:
December 2022
In December 2022, the market bottomed after a long brutal bear market where the QQQ fell 40% on the year. It marked the BOTTOM of the bear market.
December 2018
December 2018, the stock market had already started a major correction that began in September. So it wasn’t really the month of December that started a correction. It was the end of a correction that began in October 2018. By January we were already on the way up.
December 2008
The market didn’t crash in December. It was down all year long. The market peaked in the first two days of January 2007 and was down all year long. It crashed September 2008 and continued its sell-off in December. But again, that’s not a December lead sell-off. It’s a bad year ending horribly.
December 2011
Again, same exact thing. In August 2011, we had the U.S. credit downgrade. Steve Jobs died on October 4, 2011. Stocks were down all summer and fall. If I recall correct, November was a positive month where we rebounded and then we had a slight sell-off in December. We then went on a massive rally to start 2012 as the correction ended by December.
December 2000
That was again, at the end of a very long and brutal sell-off in teh market that began in March of that year.
But not due to December itself.
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There was not a single example here where December was the triggering month. Now I’m even more intrigued. I’m going to take a look at the last 20-years and see if we have any “starting” corrections in December.
Take a look at this chart. here’s the trend for the last 25-years. December is basically a follower month. It pleases whatever the market is doing. If the market is moving higher. So is December. if the market is moving lower. So is December. If the market is topping, it’s happening in January:
apparently not
“The SP500 is on its long-term oblique resistance + bullish wedge: it will inevitably consolidate on these levels! (target 5800).”
Sorry I didn’t realize you wanted me to analyze this. I thought you were just making a comment.
I’m not quite sure I follow, however, on the wedge part. We don’t have three points on any lower trend-line to establish any sort of a wedge on any time-frame that I see at least.
Here’s what I do see on the S&P 500 (SPY). I see an index that has matched its previous rallies in terms of duration — like the QQQ — and which is due for a correction down to the $560 level (previous highs) set in July. $60 move down from $620 would represent a 10% correction down around the 200-day moving average.
The QQQ and SPY follow similar cycles.
On a more short-term basis, the 50-day moving average sits at $585 for the SPY. There’s also the election gap between 5775 and 5850. In term so areas for the S&P to gravitate in a shorter term smaller pull-back, it’s going to be 5850/5866 (50-day) or the the bottom of the gap-line at 5775.