Samwise Quick Reference Handbook
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Hi Sam,
Based on your experience, does this type of technical analysis work as well with other ETFs (e.g. SPY)? I know we mainly track the QQQ, but just curious to know how broadly this type of analysis can be applied for future reference. My initial gut answer is yes as this seems more like a psychological trading principle rather than specific to individual ETFs.
Thanks! 🙂
It applies to all stocks, etfs and indices
Could blowout earnings stop the pullback in its tracks, or the pullback is going to happen regardless?
Of course it can. There’s no rule that says it has to pull back at all. Just that it’s likely to happen.
We’ve seen plenty of instances where the market just goes parabolic and the pullbacks are smaller at 1-2%.
What’s more? We’ve already pulled back 3% which is in range of the typical 3 to 4% pull back.
There’s no rule that says we have to go to oversold. It’s just that when we go over sold things become very clear.
Like suppose the QQQ fell to the low 450s and reached deeply oversold territory. We can then forecast with high conviction that a rally is going to follow.
But with the QQQ having reached -3% today from a highs, it has largely already fulfilled the pullback target
Earnings comes in strong, the stock market can easily rally.
Nice, here we go…
Hi Sam,
How can we be so confident that $450 is the pull-back target for the QQQ? Is this purely off the fact that there is an upper gap line at $452 and the market tends to magnet towards gap lines? Or maybe that $452 sits at exactly the 50% fib retracement level (based on rally from $428 to $476)? Or both? Would love to know more about the mental process you went through to arrive at this target price for educational and future reference!
Thanks!
It’s not that we’re confident that it’ll drop to the low $450’s, it’s more that the low $450’s represents a floor before things get messy.
What’s more, at $452, it’s a 5% drop which is still very much in-line with the segmented rally analysis. Most segmented rallies peak and lead to a 3-4% pul-back with many leading to a 5% or slightly more pull-back.
Secondly, at the low $450’s the QQQ is likely to reach oversold territory which is in turn like to lead to the next leg up.
Third, that $452-$454 area represents the top of the gap-line for a pretty sizable gap. Gap-lines create support and resistance.
So those are the main reasons for expecting a pullback into the $450’s.
Finally, a drop under $450 could indicate a peak in the intermediate-term rally off of $402. It could mean the end of the run. Mostly, because at that point we’ll have dropped too far away from the highs and the QQQ will have basically formed a double or even triple top in the $467 zone. Initial reaction on postponement of tariffs was $467. The QQQ pulled back sharply and re-attempted that $467 area. It failed, pulled back to $428 and then tried for a third time and getting as high as $476 in the process. If the QQQ then pulls back sharply off of that level falling back under $450, it basically means a triple top. There’ snot a huge difference between $467 and $476. It looks like a triple top if the stock drops under $450.
Hi Sam,
Is there any reason why you didn’t pick up any more QQQ hedges yesterday seeing that QQQ was pushing overbought yesterday, was at a key resistance level ($476), and the VIX being at 23?
Thanks!
So we’re already fully hedged completely. Arryn, Stark and Lannister all have full hedges. Arryn has more puts than calls at the same strike (10 puts and 8 calls). So Arryn is already sightly more than hedged.
When considering putting on even more hedges, we want to have more confidence and ideally, we want the QQQ a lot higher or as close to a full blown intermediate-term peak as possible.
The reason our hedges on Arryn worked so well is because we waited potentially to reduce our long exposure slightly by selling some calls and then we aggressively added puts well beyond the required put-call ratio needed to preserve our capital cost. We calucluated our hedges to protect profits. And that’s what they did. We ended up north of $150k (up 50%) when Arryn when the QQQ was trading down near $400 a share.
We have that already going on here. A crash down to the low $350’s would put us at profits. To add even more, we want to be sure.
The other portfolios, don’t have that luxury because we’d need to reduce long exposure to add. So Lannister and stark aren’t going to do that. For us to make transitional trades in stark/lannister, we need to see the QQQ up near $490
Thanks Sam!
What is your guidance on put-call ratio? I remember mentioning you wanting to eventually get to a 2:1 put-call ratio based on the environment.
So it’s really different for each portfolio depending on so many factors. The portfolios that are going to have the strongest hedges will be the ones that were well timed.
The reason Arryn is way ahead is because the August correction unfolded exactly as expected.
Capitulation happened fairly quickly in the process and the market conclusively bottomed and rallied to its highs thereby allowing us to hedge.
We got substantially the same result with Lannister.
Stark is a little more soft because we bought somewhat in the middle of this correction.
We had the foresight to know not to get too invested, however
We only went about half in when the QQQ had fallen 7-8%.
This allowed us to add at even lower levels and we did have a strong opportunity to hedge. That hedge helped us to bring the portfolio to even fairly quickly. And now Stark is green.
But there is no exact ratio.
Generally speaking, I aim for 1-to-1 with the hedges, protecting our capital investment when the QQQ falls by 25% or more.
We don’t really hedge out corrections we hedge out bear markets, and crashes.
Since Arryn has performed so well, Arryn has the luxury to increase our exposure to 2:1.
It won’t really eat into profits because the hedge cost is so small relative to the size of the portfolio
And we will down the line be able to sell premium to pay for it
What do you make of the market nearly recovering from its opening losses? Was the pullback contained to just one day?
Seriously. I think NVDA was down 4% this morning.
bull hammer
I am having serious whiplash from this market, all these crazy high percentage moves all the time, be nice if it made up its mind..
Meta and MSFT strong earnings! Market is ripping! nvda moving higher as well. Looks like we’ll see QQQ breaking past the 480 zone soon then!
MSFT and META earnings beat，QQQ is at 480，if AMZN also beats tomorrow, we should see 490 ????
for sure!
as Sam mentioned, taking and closing well abive 493 is super critical!
I’m bullish on AMZN for earnings. But I’m actually a little bearish for AAPL.
PM Update Sam?
Sam, should we expect to see $493 in the matter of a day or 2? If QQQ sit at low $480s does that invalidate anything?
gap up & run