Samwise Quick Reference Handbook
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Thanks for all this analysis. When you say it could simply reverse at anytime, are you suggesting it could simply reverse off $431 where it’s sitting right now or is the push down to at least $415 inevitable?
Yes. The selling is lackluster. The volume is low. The volatility is low. This leg down isn’t like the others at all. We’ve seen this on every time scale. On the minute chart intraday, on the hourly, daily etc. This leg is on the weak side.
It’s hard to articulate this right. Often when you get a low and/or market bottom after several legs down — whether we’re talking intraday on a microscopic scale (minutes) or over the hourly or even in a correction — it’s not uncommon for the market to have one last pull-back that falls short. It often plays out in an inverse head & shoulders or a double-bottom or a simple pull-back that falls short of the previous lows.
We had a bottom at $402 on heavy volume with a massive surge up to $467 on the tariff postponement right? Since then the market has sort of traded sideways as volatility has abated.
Since then the market has made a push lower on weak volume and even weaker volatility. It’s almost like a going through the motions pull-back.
Often that is bought right up and it can easily come right out of left field. At any moment in this leg down, we could easily see a surge of buying interest come in and that’s that for the correction. Notice that being oversold on the weekly makes it inevitable that we’re going to see a large multi-month rally very soon. Next few weeks we likely set-up to rally big. That’s where we’re at right now.
As of today, we’re now back down to a 35-RSI on the weekly. That’s going to eventually play out to the upside.
But to answer your question specifically, because this leg is on the weaker side, it can easily reverse course at any moment for any reason. It’s unlikely that the QQQ will be able to make substantial new lows beyond its prior lows. So really any point in time between right now and within a $20 range of $400, the market can bottom and begin a rally.
What we’re seeing right now in the market — a slow transition in the news on tariffs — is exactly how it happens. A few more weeks and tariffs will be in the rear view mirror and then the issue will heat up again as we approach the 90-day deadline.
Thanks Sam! What’s the rationale for holding any of the May spreads at this point even at a few pennies, why not just take those off the table, free up margin etc.
They aren;t going to pay at this point.
I’m curious if there’s something I could be missing that warrants holding them, even though they are never going to amount to much. Quick BSM math shows that for them to be worth even a $1 QQQ would have to hit $500 by the end of April, that’s near impossible.
Come May 1, if QQQ isn’t even above $460, they are worth $0.
I understand how small they are, but just can’t wrap my head around why not just unload?
So for our overall portfolios, those spreads represent an exceedingly small portion of our overall assets and allocation. Even at cost, they were about 3-4% of our total allocation based on our overall strategy.
The reason we aren’t selling them is because the overall risk-reward doesn’t make sense for us to close them out given the current market volatility overall.
Yes. It is extremely unlikely the market is going to rally to $500 by the end of April. But at the same time, if it were to ever happen, it’s going to happen in this precise environment.
The overall potential for something like that to occur would be in this current environment. That’s the main reason.
We’ve seen very aggressive snap-back rallies in environments just like this. While it’s unlikely to happen by the time we reach expiration, we might reach a point where there’s a lot more value than there currently is at the moment.
The market doesn’t wanna go lower
NVDA has been feeling weak. A downward trend with lower lows and lower highs. Kinda concerned about Stark and Frey portfolios since they have decent NVDA positions
Zero concern in stark or Frey at all. No concern whatsoever. We’re well hedged in the portfolios and Nvidia’s long-term proposition is solid. What we’re seeing right now is a short-term sentiment issue. Once the market bottoms out and starts to move in the other direction, Nvidia will go with it. Remember, we still haven’t seen a shift yet to the buy side. We’ve only had a few days of rebounding/rallying. The environment is still bearish.
Even with NVDL? Isn’t there erosion since it’s a daily vehicle?
NVLD outperforms on the upside as well. When the environment is positive and moving in an upward trajectory, we’ve seen the NVLD far outperform it’s 2-1 benchmark.
On a run from $90 to $150+ long-term for example, we could easily see the NVLD double in value or more from its current levels.
Hi Sam,
You mention
Could you provide some insight on how you quantify what “a lot more downside” means? Are you calculating this based on some formula? Is it based on experience? Would be instructive if you could gave more insight on the back-of-the-napkin math you’re using to gauge how much selling needs to happen before we hit oversold.
Thanks!
I’m curious of this as well. On the chart, the downsides point to two psychological resistances around 415 and 400 (the previous low). Both should put the RSIs on the mid to low 20s, which should trigger another rebound.
That’s how I’m reading it so far, but would definitely like to know if I’m on the right track.
Sounds about right. Though today’s rebound at the end of the day kind of kills it a bit. The rebound took the hourly RSI up to 38. We were already oversold at around $428.
So the hourly oversold is based on the current environment. If the QQQ is only moving up $0.30 a day on average, then it takes almost no selling for the QQQ to reach oversold conditions. The RSI is based on “relative strength.” It’s based on the average move in the market over the near-term.
Recently, the QQQ has been moving quite dramatically and so that has expanded the amount of selling that is required to push the QQQ into oversold territory.
Take a look at the beginning of this correction for example. It only took the QQQ dropping from $537 to $525 or $12 to go from the mid-line down to deeply oversold territory on the hourly. That’s only 2.2% total. The QQQ was down 2.47% today alone. And yet it’s not at oversold territory. Granted, it did reach oversold today at the lows near $428 and promptly rebounded $5.00 after doing so.
I don’t have hard calculations but they certainly do exist. Put in a prompt into ChatGPT and it’ll for sure outline it for you. There’s math to it for sure. I went through the math ages ago. But now it’s all by feel for me.
You can kind of sense what it takes for the QQQ to reach oversold. It needs to sell-off aggressively and against its recent trend if that makes sense.
The QQQ just sold-off from $465 down to $427 and just barely reached oversold on the hourly. Normally an 8% drop like that is all that is needed to reach oversold on the DAILY! Really, we’ve seen plenty of 7-9% sell-offs result in oversold daily. But that’s also because the preceding trend was very low volatility.
On the flip-side, the QQQ rallied from $402 up to $467 and managed to come nowhere near overbought territory. I’d say that’s extremely rare. We’re talking a 16% move to the upside and not even close to overbought. We got up to like a 67-RSI.
I feel like the market has consistently taken a worse path than the worst case Szenario these last months. First a Super small first rebound, then basically a one day rally before the next leg down, unreal.
I gotta say I just have no confidence in anything anymore, can’t imagine a proper rally barring a miraculous change by the administration. And even then I don’t know how the market will be confident that they won’t change their minds again. I think we never had such incompetency before and the market is really concerned when looking at falling equities, falling dollar and rising bond yields.
This f**** correction, our May spreads are toast as well I guess.
Sorry just venting, I’m not blaming anybody, just frustrating..
I know how you feel. I foolishly bought NVDL like the day before the correction started. I kept waiting for a big rebound, so I could sell before it got worse, but then the big rebound never came, and things just kept getting worse. I guess there was the big rebound for the tariff pause, but that only brought me back to where I was the day before Liberation Day, which was still down a lot. And due to the way NVDL compounds, even if NVDA goes back to its highs tomorrow, I think I’ll still be down money. Obviously this is partly my own doing, as I would’ve been in a much better position if I had followed Sam’s portfolios, but still, it’s very frustrating that the market keeps having worst case scenarios
Yeah same, if I had sold some on those rebounds it would have been a lot better, but who knew they would both be so small in terms of size and then length.
Feels really unhinged right now. Sam has been pretty spot on for a long time but this environment seems to be really tough to gauge. Otherwise I’m sure we would not have made the purchases we did in the Trade portfolios.
Maybe think of it another way ? The moment everyone feel hopeless is the moment the market will truly start to rebound. The standard Sam evaluation is still correct. The market gap down, with smaller shorter leg each gap. Now, it should fill up those gaps down with rebound, obviously with some pull back each rebound. Looking at the broader pictures, we hope to be back all time high this July 2025.
However, I truly understand your frustration. Trading around August 2024 feeling very great compares to now.
Yeah I imagine that could happen.
But looking back we were confident enough to buy in the long term portfolios at 500! But it kept dropping another 30 points for a pretty big 1st leg. We then expected a substantial rebound, it fell short of even the minimum historically. Then we thought it might be a retest before then rebounding properly. But of course it drops massively culminating in capitulation with all the indicators for a bottom. Now it’s oversold on the weekly! We then think it might rebound at least 20% over a few months, maybe even a COVID style recovery. But nope, it shoots up for a day, stalls and drops again. So now the theory is that this truly is it and it should then rebound. I mean sure, it’s gotta rebound at some point but by now I don’t really see how any of this unfolded predictably. The theory just had to be adjusted every few days to account for the unexpected market movement.
So by now I just find it hard to be confident about any likely outcomes. The market just burned us over and over during the last months.
And this is in now way criticism, I don’t see how anybody could have foreseen this, everybody was caught off guard. I just think we should acknowledge that this is not just business as usual and there’s nothing unusual about this correction.
Calling this macro environment not just business as usual is exactly what I was saying at the beginning of the month.
As for what I expect? A bounce will probably come (it certainly does happen even in the worst drawdowns). But if it does, it’ll be weak, short, and sold into. I don’t expect a classic V-shape recovery. I expect a jagged floor, retests, and ultimately — lower prices. Not because of technical exhaustion, but because the macro foundation has cracked, and there’s no monetary or fiscal cavalry riding in.
My conclusion?
This isn’t 2018. This isn’t 2022.
It’s something new. It was plainly laid out yesterday. The new model is irreversible. I also expect more isolationism, and like I said earlier an ever expanding, possibly never-ending trade war…
also remember him asking Sam to compare to the 1929 charts ????????????
Really, the only semi-relatable historical analogue to our present environment, and even those weren’t as bad as currently implemented. There were bounces even then too.
You might be interested in checking out tradingedge if you aren’t already subscribed, he went from being quite the permabull a few months back to doing a 180 on his posts and tone now. It’s a good balance to Sam’s posts for more perspective plus he is free
Is that a youtube channel?
Somebody, anybody sycophant or TDS-riddled needs to tell him that he “won” so he can send out a euphoric tweet and we can get back on the road to normal.
Hi Florian — so this isn’t uncommon during large corrections and bear markets. And let me explain why.
In something like 90% of all pull-backs, corrections and sell-off, we have a normal 5-12% sell-off. This is what we almost ALWAYS see transpire in the market.
What’s more, in an even higher number of pull-backs (major corrections included) the market tends to still follow overbought and oversold indicators.
Generally speaking, when markets reach oversold territory, it tends to follow a very predictable pattern across all environments.
So when a sell-off occurs, it isn’t always clear at the outset of that sell-off whether we’re dealing with a regular pull-back that happens numerous times throughout the year, a regular correction or a rare major correction. That isn’t always obvious.
And as markets sell-off, the sell-off masks as one thing and sometimes things are far worse than what is indicated.
For example, take a look at the correction table we posted and note the sheer number of 5-13% sell-offs there are in the market. Those selloffs are extremely common. Something like 35 of the 48 sell-offs we have listed in the table went for 13% or less. And what generally follows after a 13% sell-off is a rebound back to the highs or at least a major rally ahead of another correction.
This is precisely what makes trading specially difficult and why we limit the allocation we use for trading.
Because our long-term strategy can deal with any sized sell-off. It doesn’t matter how large. Even if the market falls 70%, our portfolios are positioned to withstand that and even profit on it.
Trading wise, it’s far more difficult to accomplish that end and hedge at the same time. Hence the much much higher risk variables and lower allocations.
When looking at our long-term portfolios, it doesn’t matter whether this is a 7% or 13% or even 40% sell-off. The end result outcome is the same.
The moves we made in the long-term portfolios are the precise moves we’d make expecting a bear market. We waited for the market to reach capitulation and deeply oversold territory to close out puts and then get long. We then reduced our long exposure on the rebound and re-entered our hedges.
If the QQQ rolls over again, pushes into deeply oversold territory and we get another capitulation, we’ll make the same transition ahead of the same rebound and make the same transition back into the puts on the ensuing rebound.
The long-term strategy works and is generally superior to the trading strategy because it can weather all types of market environments whereas the short-term strategy is susceptible to this precise type of sell-off. Down 25% from the highs is hard to extremely detrimental to the trade strategy especially when it sneaks up like this one did.
Often big sell-offs like this don’t ramp up as we saw here. Typically, just like we saw with Covid for example, the market pulls back hard immediately. You get heavy selling right out of the gates. That didn’t happen here. Instead the market just ramped up from what appeared to be a typical 5-7% pull-back into a regular correction and into a larger 20%+ correction which happen once every 3-years on average.
Hi Sam,
You mention
Do you have a general guideline on what constitutes as “significant enough”? Is it based on % of the amount in the prior leg down? Do you use Fib retracement levels? What data points / indicators are you using to feel confident in what a “bear dooming” rebound looks like?
Thanks!
So as I’ve outlined, the big things are this. When the distance between the high points is much smaller than the distance between the low points, there’s a problem for the bears.
it means the rebounds are retracing almost all of the selling that just occurred. This in turn means that even more selling is required to keep the momentum going and that selling must happen even as bearish momentum slows and even turns neutral.
For example, while the current sentiment is still quite negative, it is nowhere near as negative as it was after liberation day right?
The lower negative sentiment means we’re likely to see less selling. What’s more, the weak hands have already been shook during the first leg down and a lot of people probably used the ensuing redound to reduce their positions.
Meaning, we have less people out there willing to sell than we had the first time around.
But setting all that aside, when looking at the math, we generally look at 50% retracements remember?
If the QQQ falls $50, rebounds $25, falls $50, rebounds $25, that trend is quite sustainable.
What isn’t sustainable is a situation where the QQQ falls $50, rebound $40, falls $50, rebounds $42 etc. We’ve seen that happen before in 2018, but it’s extremely rare.
Whenever we see a rebound retrace the majority of the previous losses, it’s typically bad news for the bears for all the reasons we outlined.
Think about it. Suppose the QQQ falls $36, rebounds $21 and then falls $28 and rebounds $23. You can see just by those numbers alone that the trend is weakening. It means there are strong buyers there at a certain support level and that the demand is likely to slowly but surely transition to the buy side.
That’s kind of what we’re seeing right now. The QQQ just sustained a $74 sell-off from $476 down to $402 and the QQQ managed to claw back $67 of that. There was a point when the QQQ was only down $7.00 post liberation day. Think about how significant that is.
And even if you count the sell-off as having started from $493 (the previous high point), that’s still a $91 sell-off and a $67 rebound. That’s 73% retracement of the entire 2nd leg down.
That means the QQQ not only has to sell-off a full $67 just to get back down to its prior lows, but then it needs additionally sell-off by a substantial enough degree to push the lows a great enough distance below the previous low point.
For example, the low points in this correction are $465 and $402. That’s a $63 difference in the lows between leg 1 and leg 2. If leg 3 only gets down to $380 for example, we’re talking a $63 difference between the lows of leg 1 and 2 and $22 between leg’s 2 and 3.
It’s going to look like a clear-cut bottom if that happens. Every fund manager, experienced investor and trader will see that and say bottom. That will trigger a massive amount of buying.
And notice that for the QQQ to even get down to $380, it would require a sell-off of $87. The leg would need to be around the same size of the full 2nd leg down to even reach $380.
——-
So I think 50% retracmenet is the guide. Anything far north of 50% and the bears have an issue. We’ve seen market shrug that off before. In 2018, the market once had 80-90% retracements on multiple legs and ultimate had a final big leg down anyway. It was very unconventional. But in most cases, you can gauge where the selling in a correction is likely to end just by objectively examining the distances traveled.
It takes all of the bullshit out of the analysis. The QQQ straight up fell $91 from $493 to $402 and then rebounded $65 up to $467 immediately thereafter. That is 74% of the entire sell-off reversed. Which in turn means the QQQ has to make all of that first on the downside before it can even begin to talk about new lows. That’s $65 of downside just to make a new low.
Sam, in your estimation what are the chances of another round of bad news that would trigger a fresh wound and a new low?
If the market makes a new low, it’s unlikely to be bad news that drivers the market. That’s kind of behind us. If you look at how bear markets play out, the market just trends lower on no news at all.
Capitulation and volume spike already occurred. That part of the sell-off is over. So I think unless the news is ground shifting, any news that comes out will have a more near-term impact on the market.
I don’t think Trump can really do much damage to the market anymore because the market now knows he has limits and pressure points they can squeeze. Once the market knows an existential risk is no longer real, it’s not going to response in an existential way.
That doesn’t mean the market will necessarily trend higher long-term either. From 2000 to 2003, the market sold-off in the longest bear market I’ve been through and there was very little news driving it. We had news worthy events like the dot-com crash that started the bear market and 9/11. But after the dot-com crash and 9/11 was well over and done with, the market still trended lower for almost 2-years after that.
We saw a taste of that in 2022. What’s important to understand is that bear markets are LONG-TERM outlooks on the market and that for several months during those environments, the market can rally big time.
Right now we’re either in a bear market or at the end of a major correction like 2018. There’s literally no way to know until things play out because bear markets occupy such long periods of time.
If we’re in a bear market, it’s not going to be news that fuels it. You don’t get perpetually bad news for 1-3 years straight. It doesn’t quite work like that.
In 2022, the market fixated on the CPI report because of rising inflation and we’d see big selloffs on CPI days, but between CPI reports, the market either trended higher in a bear market rally or trended lower in a leg down.
As I see it right now, the market is gearing up for a massive rally one way or the other. Bear market or correction. It makes no difference. We’re gearing up for a big rally.
Whether we’re in a bear market is a LONG-TERM time horizon question. For the intermediate-term, the market is gearing up to rally for several weeks regardless of how the LONG-TERM trend ends up playing out.
The rally likely takes the QQQ up to around $480 minimum. After that, the long-term trend steps in and determines whether the market goes higher or lower.
Those determinations can’t be made from where we’re seating right now. People can make those predictions all they like, but they’re most likely to be wrong as bear markets are exceedingly rare.
Thank you very much
Sam, Would it be possible for QQQ to test the low and then have a nice bounce up to around 433 and then resume the downtrend and go all the way down to around 340?
That’s only a 22% drop from here. LOL
Anything is possible. Just not very likely right now. So let’s play it out. The QQQ previous low points were $465 and $402 right? And the QQQ high points are $493 and $467. There’s a $63 different between the lows and only a $25 different between the high points.
That’s the market indicating that the momentum is shifting toward the buy side. We should see the opposite in a truly bearish environment.
We should see the highs reach close to convergence like that. The increasing low points would be bearish if not for the fact that the QQQ rebounded up to $467 thereby nearly erasing the entire 2nd leg down.
Could the QQQ reach $340? Sure. But I highly doubt it’ll be anytime soon. More than likely we’ll see a long multi-week rally first and then after that rally happens, we may see another major leg down as we’ve seen in this correction.
For this to be a true bear market — which is what it would take for the QQQ to reach $340 — we’d need to see a long drawn out rally first as we’re not going to see the bear market unfold in 2-months. That’s not how it works.
We’re either in a major correction like 2018, 2020 or a bear market like 2001, 2008 and 2022. If it’s the latter, it happens over a very prolonged period of time with drawn out market rallies in between major legs to the downside.
If we’re in a bear market, then this overall sell-off we’ve seen from $540 in February to $402 in early April is coming to an end. We rally for a few months and then from there we may see a leg that takes us down into the low $300’s like that.
Alternatively, if this is a major correction like 2018 or 2020, we could see a breach into the $300’s but very highly unlikely to see anything well below $390. The low $380’s is probably it. We’ve seen that happen in so many past bear markets and corrections. A breach under $X00 that takes the market to $x78 or $X81.
Thanks Sam!