Samwise Quick Reference Handbook
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God this reversal was so much fun. Reading WSB on a day like this is peak comedy
Someone on the Nvidia Reddit is convinced that NVDA is what’s dragging the rest of the market down and another is convinced that NVDA dropped due to manipulation because it didn’t go straight up to $250, instead of the much more likely cause of the market as a whole being due for a correction and all other stocks following it
Yeah it is a little sad to see lol
Sam, How low are we likely to go in scenario #1, 586?
$586 is 8% but doesn’t get us even close to a 30 RSI hourly it looks like. $580 or lower I would assume
We’re in scenario 1. that’s it. the QQQ has gone too far. But notice it can easily be BOTH.
We’ve seen a 10% correction, followed by a complex top, followed by an even larger 30% correction later.
It’s not necessarily mutually exclusive.
And A Dhindsa is right. There’s a lot of downside. It’s just a question of risk. We don’t hae to bottom at $586. That’s jsut the level where we’re going to mitigate the risk of a potentially smaller correction by getting at least 30% long. That way if this ends up being some one-off small correction, we have something on the long side to protect us.
Sam, If QQQ goes below 590, is it likely to stop at 586 and have a strong bounce?
Not sure to be honest. Between a 30-RSI and a 70-RSI, everything is less certain. Once a stock/market reaches a 30-RSi or below or rises above a 70-RSI or above, it becomes far more clear what is’ likely to happen.
Like we know there’s only so much downside once the market reaches overused. There’s only so much upside once it becomes overbought.
In between those points, it’s uncertain.
Thanks Sam.
Hi Sam. Is there any action to take on the NVDA 170 covered calls that expire tomorrow?
I was just thinking about that right now. so here’s what we’re gonna do and our general thinking here.
If the market closes at the lows of the day today, then probably around the last half hour of trading, we will close those out.
If the market rebounds a bit, then we will wait till tomorrow
And if the market rebounds big tomorrow, it’s no big deal. What we will do is closed them out and then roll them forward to next month.
In fact, regardless, we’re going to roll forward to next month
So if we cover today for example, we will sell next month expiration
If we cover tomorrow and Nvidia has recovered, same deal
This is the environment for covered calls. From a pure probability standpoint were very unlikely to exit this environment without a major correction.
So if the markets start to rebound from here then I’m pretty sure it means we’re gonna form a complex top. Like this whole 8% no nonsense. I don’t think it’s gonna apply here
If we only end up dropping 8% the market is going to form a major complex top, which opens up an opportunity to keep selling covered calls in Nvidia
So that’s the plan right now. We will try to close them at around 3:30 est
So probability wise it should go for a major correction. What is a major correction? 20%
For Nvidia, I would say 22 to 30%. If you look at past corrections for Nvidia — and I posted a chart above — we generally see a 22 to 30% correction after each rally
Now notice this is the biggest Nvidia rally of the AI era
It is actually the biggest rally of this bull market. Nvidia has gone up in a straight line 144% without a correction.
I wouldn’t be shocked to see a 40% drop. I’m not expecting a 40% drop but I also would be “like oh wow that’s surprising.”
Like if Nvidia fell 40%, it would make sense. It would be a larger than what we’d expect. But it would either be bearish nor would it be entirely surprising.
Corrections are what generate interest in stock. When it was trading at 86 back in April, that was a massive opportunity.
The stock market knows this. Wealth generation is located in these opportunities.
After 144% rally, by far the most logical place from Nvidia to go is 150 a share. From there it can then see another 100% rally to 300 over a prolonged period of time. At least that’s the way I see it.
Though we do have to track where the QQQ is and how Nvidia is trading relative to the QQQ.
Nvidia is not gonna continue. It’s correction if the QQQ has bottomed.
So if the QQQ falls 13% reaches a 20-RSI and Nvidia is trading at like 165 then that’s where it probably bottoms.
The very day, the QQQ bottoms and starts rally will be the very day Nvidia bottoms and starts rallying.
I haven’t done all of the math right now, but we have Nvidia at 180 down 14.2% with the QQQ down 8% right . That amounts to a 23% correction on a 12% QQQ correction.
At that ratio, it would be at the small end of the range for Nvidia. This point to like 160 to 170 for a bottom at the current rate.
We would get interested in Nvidia. If it reached over sold territory on the daily that’s the key thing.
how about nvda june puts 90?
So as the common stock portfolios go, Nvidia puts are there to protect our Nvidia position. We’re gonna still hold those.
But as our options portfolios are concerned, we will probably soon get rid of those
Hi Sam,
Could you elaborate more on your statement:
Is the $550 down side target based on a chart pattern? Or is this statement purely based on the potentiality of a daily 200-SMA test? Would love to hear more details on your thought process here.
Thanks!
So just looking at it from the perspective of a test of the 200 day moving average and what we’ve seen from other past corrections — and I’m sure we can actually put a table together on this very issue — that downside target is just based on the logic of testing the mid-century Mark together with a substantial correction commence it with the size of the rally coupled with the fact that in most corrections, there is some meaningful test of the 200 day.
Well, we might not see the QQQ go exactly to the 50 day there seems to be always a meaningful attempt
At 585 we are nowhere close to a meaningful attempt. Like this is definitely worth charting.
It’s more of a totality of the circumstances type thing.
Like even though this feels like we’re getting near the end of the correction, when you look at the fact that the pullback thus far puts us at a topping pattern more than anything, we might be seeing only the very, very beginning stages.
In fact, if we drop like 15 points tomorrow, then I would even go so far as to say that today’s a really day one.
And it wouldn’t surprise me even a little bit to see a 15 point drop tomorrow not even a little bit
If the QQQ fell to 570 tomorrow, it would make perfect sense
What doesn’t make perfect sense is the QQQ rebounding after a massive reversal like this or like what we saw back in early October. That makes no sense and we’ve only ever seen something like that happen a very tiny handful of times ever. In most cases when you have a big rehearsal like we saw today the next day is an even bigger down day. Or if not a bigger down day, there’s at least follow through usually we should be seeing something like seven or eight points down tomorrow. If I knew nothing about this dumb rally and I was projected into the future from any time in the past I would say that tomorrow we should be down at least 7 to 8 points. That’s because we had a massive reversal today. It’s not just a sell off. We had a massive reversal from 614 down to $585 in a single session. That’s a 30 point move. I think about how crazy that is the QQQ dropped $30 from early this morning to the lows of today.
If we were in any other market environment, literally any other environment we would see the QQQ’s in the 570s maybe even down to the low 570s with the RSI dropping to 30 minimum. That’s what should happen tomorrow.
Especially with tomorrow being a Friday. And if we get something like that, we will be in good shape as we will be able to reduce our put position and add to our leaps.
So counting today we’re already at day 17 of the correction. That would give us 8 days to the bottom if its a “standard” one. lets see i guess.
Yeah, that makes sense. If you pull up the correction table or even the rally table and sort for correction days that that’s what you’ll find.
How does the RSI look right now?
The hourly RSI is nowhere near oversold and we are at 35 on the daily. That 35 number means we have gone just far enough that if the market decides to bottom this will at best look confusing. At worst it’s a clear cut correction.
Here’s the problem let’s suppose the market bombed today And the QQQ rallies back to 637
We will have to ask ourselves is that rebound back to 637 just a retest of the highs or is it the start of a new rally?
With the QQQ having closed at a 35 RSI, there’s a strong case to be made that this is the start of a new rally
If we reach 30, there’s no question that’s the definition of the end of a correction is once the RSI reaches 30
But at 35 we have confusion at best The QQQ has corrected 8% which constitutes a correction
But it would be at the very low end of the range. the absolute minimum.
And in fact, believe it or not for rallies of this magnitude, it would be an exception if the correction only went for 11%
This particular rally is in a category of rallies were even on an 11% correction would be too small. Compared to historical events it would be an exception if it only went 11%.
Sam, If we are going to go down to 550, are we likely to go straight down, or are we more likely to have a few strong bounces on the way down? And if we are going to go down to 550, how long do you think it will take to get there. Is it likely to get there in the next week or two, or does it usually take longer?
Corrections typically happened very fast especially when there’s a breakdown like we have today.
That being said once we reach over sold, the market is going to rebound
So it can go either way
We could see a hard sell off that takes us to 571 which then leads to a rebound which then leads to a cell off down to 550
Or we could see the market just ignore oversold conditions and go straight down like a knife. I can tell you that those types of sell-offs are very rare.
More common is we reach deeply over sold and then rebound 3%.
All I know is that the risk that were down below 580 tomorrow is definitely very high. Like I wouldn’t be surprised to see us open below 580 tomorrow and for the QQQ to test 570. Like in a normal correction, we should see something with the number six in it tomorrow. 568 or 569.
When you have a major breakdown below key line of support that’s what typically happens
But this environment has shown to be very tricky. So it’s really hard to tell how this would play out.
But as I mentioned before we get more certainty once we reach over sold
As the market is not yet oversold on the hourly, it’s hard to really forecast direction with any confidence
We need the hourly to drop to 20 before we can say, “all right it’s time to rebound.”
Once the daily reaches a 30 RSI, it is a 50-50 chance of a bottom. Half of every correction that has ever happened bottomed on the very day the QQQ reached 30.
If the QQQ is down 8-10 points tomorrow, it’s going to reach 30.
I’m guessing we are waiting until tomorrow to go long if at all? QQQ 586 and RSI 36 now
lol nvm
Hi Sam, what’s the trade plans for the common stock portfolios? I see that you will update the other article later but just a general idea of when we plan to start buying?
so in that new sticky article that we did, I will outline it there, but it’s gonna mirror the leaf portfolio and in terms of entries
Like the times that we decide to buy in the leaps portfolios is gonna correspond to when we decide to buy in the common stock portfolios.
I think the daily and near term scenarios is getting a little complex and at this point and definitely looks like we are in a very bifurcated market with equal possibilities of distance to new highs or correction bottom. Thank you for separating the plan for the long term trades into a separate post.
What are the chances of nvidia to retrace back into the high 180s before another leg down?
I totally missed the action today due to work. You think I can execute the Stark and Frey’s tomorrow or must I wait for another leg down after a bounce.
What a day 🥵
Thanks for all the great analysis, Sam!