We outline strategy for how to capitalize on the January - March 2025 correction. The market is going to sustain a major second leg lower and we need to be ready to capitalize.
Thank you for taking the time to hash out all of this. I’m definitely going to read the elaborate intermediate outlook. Reading this has gotten me pumped for the next couple of weeks!
So what we’re going to do very specifically is this. We already own a lot of call-spreads right? When the QQQ pushes beyond the mid-line, we’ll reduce our call-spread position in the QQQ down to minimal levels AND we’ll purchase some put-spreads near the peak of the rebound. We’ll probably shoot for an equal amount of puts and calls. If we own 5 contracts in the May call-spread, we’ll shoot for owning 5 in the May put-spreads for perhaps the $490-$480 strikes.
Then when the QQQ inevitably pulls back to $480 on the next leg down, we’ll close the put positions, hold the call position, BUY NEW CALLS and ride the rally.
Hard to say because Nvidia could very easily find buying interest which stops the bleeding. I don’t think Nvidia will fall under $100 even if the QQQ pushes down to $480 a share. Nviida probably holds the $105-$110 zone. Again, that’s assuming we get a second leg lower. I think Nvidia will find a lot of support as the market drops.
Bill N
March 2, 2025 1:46 pm
Thanks Sam for the heads up.
On another note, I heard that the US total market (NASDAQ-100 or QQQ) and Bitcoin (BTC) really go hand in hand together. Have you ever look at the correlation in movement between the 2 Sam ?
They’re correlated in as much as all risk assets are correlated. The reason we see Bitcoin trading with the market is because it’s less a true currency and more a risk asset. It’s not so much correlated with the QQQ specifically, it’s just correlated with the entire stock market.
Masud Haq
March 2, 2025 2:54 pm
Hey Sam, with the QQQ rebound and 2nd leg down, I assume the expectation is for the same to happen with most of the other stocks in your portfolio as well. Are you planning on similar “sell at rebound and buy hedges” strategies for non QQQ holdings in the portfolios?
So with the other stocks, we plan to just simply close out the positions. We’ll probably hold a reduced long position in Tesla, a long position in the QQQ and the QQQ puts. That’s how we’ll position.
In terms of everything else, we’re going to trim or reduce down completely. With Tesla, we’d like to be at half the position size or smaller. It’s tricky with Tesla because it is already down so much and it can easily decouple from the market and start rallying mid-correction.
Alvint Sheth
March 2, 2025 9:00 pm
thanks for the weekend primer, Sam. out of curiosity, what’s your selection process to find stocks that you trade on technicals and patterns?
1-2 weeks ago you came up with a long list (Palantir, Reddit, etc.) and was curious then but was too distracted with the correction to ask 🙂
Those stocks were momentum stocks. So we still haven’t really had the opportunity to trade momentum yet because Baratheon was launched right before the December peak in stocks.
Those stocks I listed were based on momentum trading set-up. This correction kinda of derailed that strategy.
Right now, we’re in a contrarian strategy that is buy oversold stocks ahead of a reversal instead of buy high momentum stocks that are likely to continue rising due to the stock momentum.
follow up Q: do you have specific thresholds to qualify these stocks as momentum stocks?
Florian
March 3, 2025 9:33 am
Hey Sam,
I don’t want to annoy with yet another question about Tesla, since a few of us have brought up the subject in the last weeks.
You said that it’s just sentiment and the financial press putting out coverage that fits the performance of the stock at the moment.
I just wonder with news that Tesla sales in Europe have plummeted year-over-year by nearly 50% while sales for EV’s are up almost 40% in the same time frame. That sounds pretty fundamental news to me, does that not worry you in terms of Tesla not having a massive rebound?
That’s not real news. Google the phrase ‘iPhones sales down 50%” and then see any quarter where iPhone sales ever dropped anywhere close to 50%.
I looked into that piece. It’s from a reporting agency. Not from Tesla itself. What’s more, it’s for a single month in a single region of the world and their parameters are usually drastically different than Tesla’s account methods.
If Tesla’s sales dropped 50% or if the market believed that this was the case, the stock would be trading at $57 a share right now.
Thanks Sam! Wow that’s interesting, I’ve heard some people that I thought were pretty well informed talk about it, I guess they also just skimmed the news and didn’t dig deeper
So we see news like that all the time and it’s usually pretty sensationalist. You don’t just get 50% drops like that without context. There’s usually something more to it than that. Trends don’t shift that dramatically.
One thing we’ll often see happen is a research group will come out and say things like “Apple’s worldwide market share has dropped 28%.” Something sensationalist like that. And then Apple will report earnings that shows iPhone sales surged 38% year over year.
Or we’ll see some article out of China that says Apple reduced production of the iPhone XX by 73%. We’ll see the stock sell off on the dumb news. And in reality, it’s because they have finished their production needs.
Now the news could be real. But there could’ve also been something about last January that made it an especially explosive month for Tesla sales in Europe. Maybe Tesla came out with something back then that made Europeans buy more Teslas than they would and so all of a sudden this year’s January looks bad. You need to have the full picture basically before drawing any conclusions. And what’s more until the company actually delivers an actual report you can’t really read into those types of things. We’ll find out when Tesla reports.
Here’s a good approach to market news. There are funds out there with billions of dollars in AUM. They pay millions of dollars in research. Investment banks do the same and have their own analysts.
Funds are very well informed. So you just have to use common sense here a bit. If Tesla’s sales really dropped 50%, think about what the stock would do on news like that. First off funds would know this ahead of time. The market is well informed.
If you’ve ever seen how a stock sells off on truly horrific news, it’s not the way Tesla sold off over the past week or so. The way Tesla sold off is very much in line with the way it always sells off And during the sell off there is going to be all sorts of negative news items that are going come out.
The financial pass is never gonna say look Tesla is down 43% because of technicals. Or look Teslas down 43% because people are now taking profits and it’s going through its typical volatility cycle.
They’re going sell a story and people are going to pile on. The way to differentiate fact from fiction is to look at how something progresses in the market. Is the stock trading in line with what the news is telling us?
That means comparing the sell off that we’re seeing now to other historical sell-offs.
And when you look at this selloff, it’s a very much in line with what we’ve seen historically. There’s nothing special about this selloff that we’re seeing in Tesla. If anything we’ve seen a few that were far worse than this over the past five years.
By
/ March 2, 2025 
Thank you for taking the time to hash out all of this. I’m definitely going to read the elaborate intermediate outlook. Reading this has gotten me pumped for the next couple of weeks!
If I understand correctly, this would be a reverse iron condor ?
https://optionalpha.com/strategies/reverse-iron-condor
So what we’re going to do very specifically is this. We already own a lot of call-spreads right? When the QQQ pushes beyond the mid-line, we’ll reduce our call-spread position in the QQQ down to minimal levels AND we’ll purchase some put-spreads near the peak of the rebound. We’ll probably shoot for an equal amount of puts and calls. If we own 5 contracts in the May call-spread, we’ll shoot for owning 5 in the May put-spreads for perhaps the $490-$480 strikes.
Then when the QQQ inevitably pulls back to $480 on the next leg down, we’ll close the put positions, hold the call position, BUY NEW CALLS and ride the rally.
Get it, good plan.
Thanks for updating, Sam. What are your expectations for NVDA in this market rollover?
Hard to say because Nvidia could very easily find buying interest which stops the bleeding. I don’t think Nvidia will fall under $100 even if the QQQ pushes down to $480 a share. Nviida probably holds the $105-$110 zone. Again, that’s assuming we get a second leg lower. I think Nvidia will find a lot of support as the market drops.
Thanks Sam for the heads up.
On another note, I heard that the US total market (NASDAQ-100 or QQQ) and Bitcoin (BTC) really go hand in hand together. Have you ever look at the correlation in movement between the 2 Sam ?
I’m interested in this too. I Noticed the BTC moves closely with the QQQ, but I don’t know if that remains true vice-versa.
With the recent pump in crypto, I wonder how this would move the QQQ tomorrow at open.
They’re correlated in as much as all risk assets are correlated. The reason we see Bitcoin trading with the market is because it’s less a true currency and more a risk asset. It’s not so much correlated with the QQQ specifically, it’s just correlated with the entire stock market.
Hey Sam, with the QQQ rebound and 2nd leg down, I assume the expectation is for the same to happen with most of the other stocks in your portfolio as well. Are you planning on similar “sell at rebound and buy hedges” strategies for non QQQ holdings in the portfolios?
So with the other stocks, we plan to just simply close out the positions. We’ll probably hold a reduced long position in Tesla, a long position in the QQQ and the QQQ puts. That’s how we’ll position.
In terms of everything else, we’re going to trim or reduce down completely. With Tesla, we’d like to be at half the position size or smaller. It’s tricky with Tesla because it is already down so much and it can easily decouple from the market and start rallying mid-correction.
thanks for the weekend primer, Sam. out of curiosity, what’s your selection process to find stocks that you trade on technicals and patterns?
1-2 weeks ago you came up with a long list (Palantir, Reddit, etc.) and was curious then but was too distracted with the correction to ask 🙂
thanks!
Those stocks were momentum stocks. So we still haven’t really had the opportunity to trade momentum yet because Baratheon was launched right before the December peak in stocks.
Those stocks I listed were based on momentum trading set-up. This correction kinda of derailed that strategy.
Right now, we’re in a contrarian strategy that is buy oversold stocks ahead of a reversal instead of buy high momentum stocks that are likely to continue rising due to the stock momentum.
follow up Q: do you have specific thresholds to qualify these stocks as momentum stocks?
Hey Sam,
I don’t want to annoy with yet another question about Tesla, since a few of us have brought up the subject in the last weeks.
You said that it’s just sentiment and the financial press putting out coverage that fits the performance of the stock at the moment.
I just wonder with news that Tesla sales in Europe have plummeted year-over-year by nearly 50% while sales for EV’s are up almost 40% in the same time frame. That sounds pretty fundamental news to me, does that not worry you in terms of Tesla not having a massive rebound?
That’s not real news. Google the phrase ‘iPhones sales down 50%” and then see any quarter where iPhone sales ever dropped anywhere close to 50%.
I looked into that piece. It’s from a reporting agency. Not from Tesla itself. What’s more, it’s for a single month in a single region of the world and their parameters are usually drastically different than Tesla’s account methods.
If Tesla’s sales dropped 50% or if the market believed that this was the case, the stock would be trading at $57 a share right now.
Thanks Sam! Wow that’s interesting, I’ve heard some people that I thought were pretty well informed talk about it, I guess they also just skimmed the news and didn’t dig deeper
So we see news like that all the time and it’s usually pretty sensationalist. You don’t just get 50% drops like that without context. There’s usually something more to it than that. Trends don’t shift that dramatically.
One thing we’ll often see happen is a research group will come out and say things like “Apple’s worldwide market share has dropped 28%.” Something sensationalist like that. And then Apple will report earnings that shows iPhone sales surged 38% year over year.
Or we’ll see some article out of China that says Apple reduced production of the iPhone XX by 73%. We’ll see the stock sell off on the dumb news. And in reality, it’s because they have finished their production needs.
Now the news could be real. But there could’ve also been something about last January that made it an especially explosive month for Tesla sales in Europe. Maybe Tesla came out with something back then that made Europeans buy more Teslas than they would and so all of a sudden this year’s January looks bad. You need to have the full picture basically before drawing any conclusions. And what’s more until the company actually delivers an actual report you can’t really read into those types of things. We’ll find out when Tesla reports.
Here’s a good approach to market news. There are funds out there with billions of dollars in AUM. They pay millions of dollars in research. Investment banks do the same and have their own analysts.
Funds are very well informed. So you just have to use common sense here a bit. If Tesla’s sales really dropped 50%, think about what the stock would do on news like that. First off funds would know this ahead of time. The market is well informed.
If you’ve ever seen how a stock sells off on truly horrific news, it’s not the way Tesla sold off over the past week or so. The way Tesla sold off is very much in line with the way it always sells off And during the sell off there is going to be all sorts of negative news items that are going come out.
The financial pass is never gonna say look Tesla is down 43% because of technicals. Or look Teslas down 43% because people are now taking profits and it’s going through its typical volatility cycle.
They’re going sell a story and people are going to pile on. The way to differentiate fact from fiction is to look at how something progresses in the market. Is the stock trading in line with what the news is telling us?
That means comparing the sell off that we’re seeing now to other historical sell-offs.
And when you look at this selloff, it’s a very much in line with what we’ve seen historically. There’s nothing special about this selloff that we’re seeing in Tesla. If anything we’ve seen a few that were far worse than this over the past five years.