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Hi Sam! Within a broad rally cycle how many segmented rallies can we expect? Do you have an education articles on structures of rallys / segmented rallies / etc.?
Usually we get 2-4. You know, I plan to expand on Chapter 5 a lot more in the future. We’ve only very general written about the Segmented Rally analysis. That’s because we spend so much time talking about it in the daily briefing and in our current outlook section. But take a look at chapter 5.2. One section covers the segmented rally cycle. It’s typically 2-4 segmented rallies per intermediate-term rally.
Between each segment (8-10%) we get 3-4% pull-backs over a 5-day period on average.
Between each intermediate-term rally (15-30%) we get 10% correction over a 20-day period on average.
That’s how the market generally unfolds. That’s the textbook way. It doesn’t always do this so cleanly as we just saw. The QQQ fell only 7% over 18-days or something. The last intermediate-term rally went from $448 to $538. So about $90 or 21%. That rally unfold over something like 80-sessions. We had 3-4 segments in that rally. here’s the analysis:
https://sam-weiss.com/investing-basics/chapter-5-2/
It is great that the newsletter is of a risk-reward view and it is up to the reader to decide what their risk tolerance is. Great work identifying the potential trades in different timeframes down to specifics such as expiry, exit strategy, hedging and so forth. It really does help a lot to think of a trade setup rather than the individual stock or market. I love seeing those setups as I wouldn’t know much about iv and decay etc.
Are we thinking about waiting to hedge nvda in stark and frey?
right now it seems Microsoft is stepping aside and open ai is going for the stargate play for additional ai investments. Either way data center stocks like Nvidia chould see continued revenue in a few years unless there’s news about delays in funding etc.
yeah. We’re going to wait a little longer to hedge. I think we’ll probably look to hedge those on the next breakout run to $170. That’s because both portfolios are currently underexposed and so they’re inherently sort of hedged both in time and in cash on the sidelines.
Both portfolios are set-up to handle any major crash or bear market well. 2-year rule + cash gives us all the inherent protection we need at the moment.
Once the market has moved up enough, we’ll hedge the cost-basis of our positions.
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This also reminds me. The arryn portofio is up so much now that we need to be thinking about remodeling the hedge to protect the gains as well as the cost-basis. Right now, arryn is only protecting cost-basis. It doest’ protect the portfolio’s gains. If a crash happens, we’ll lose the 77% in returns, but our cost-basis will be protected.
I think once a portfolio produces enough gains, the hedge has to be reworked to protect the gains.
You mentioned that you missed the move from $830 to $1,000 on NFLX, with it down to $950 after good earnings – do you still believe it can reach your previous target of $1,100 in the short term?
Hi Sam, may I suggest a volatility play for your consideration? I am thinking about a VIX spread 14-16$ March 18 that costs approximately 1.15$ (this may be yesterday’s price, I’m not sure).
If VIX goes north of 21 at anytime by the end of February this is a 55-75% play.
The entry would have been better yesterday but depending on today’s actions it may still be worthy.
(10:00AM) The market is now open: surprisingly VIX opened even lower and the spread is now even more attractive at around 0.81$.
Let me know what you think.
Perhaps the April 14-17$ spread has less risk, it’s at 1.42$ now.
Here’s how we’d approach the $VIX if we put on a trade for volatility. First, a $VIX play is essentially a short play on the market. While the $VIX can definitely rise with the market rallying, it’s mostly a short play on the market.
So if we were to put on a $VIX trade, we’d probably wait until near the end of a segmented rally. Right now, there’s very little to no indication that we’re at or near the peak of segmented rally.
The QQQ is only up about 6% which is shy of the 8-10% move up we normally see in a segment. While the QQQ is overbought on the hourly, during segments, that barely just starts the clock for a top. For example, in the last segment that happened in Nov – Dec, the QQQ reached extremely overbought exactly half-way through the rally ($512). We had another 26-points of upside before the QQQ ultimately peaked.
We’re at $30 right now which would constitute a small segmented. But if the correction ended as we now expect, the first segment should go for $50. Meaning, the QQQ might have another $20.00 in upside before it peaks ahead of a 3-5% pull-back. The $VIX could easily melt-down between now and then.
I’m not saying this is the way it will go. I’m just saying that from an evidentiary standpoint, there’s nothing at the momen that would give me confidence in a trade on the $VIX.
The differential here obviously is the fact that the correction only went 7% and the fact that we could see another down leg before the market bottoms. That’s very possible. But still largely a toss up.
With President Trump taking office and taking all of the quick actions he’s been taking, all it takes is one executive order or statement the market likes and we could easily see the market rocket forward.
Remember, the largest rallies we saw during the post financial crisis era occurred right when Trump took office back in 2016. We had two back to back melt-up rallies with a tiny 5% correction in-between. During his first like 2-years of office the market went down 5% ONCE. So that part kind of scares me a little. We need volatility for opportunity. Without it, it becomes very difficult to invest because the risk skyrockets in that environment.
Actually let me add one thing. The SPY does look like it’s ready to pull-back and the $VIX is going to follow the SPY’s action not the QQQ. The SPY does look like it’s nearing the point where it’s going to pull-back a bit. We’ll talk about that in today’s daily briefing.
Personally, after 25-years of investing, I’ve learned that the hardest and most unpredictable trade to make is short trades on the market. Even just trying to forecast market peaks is a messy endeavor. For that reason, we have Samwise Rule #5: Never Short the Market.
https://sam-weiss.com/samwise/samwise-strategies4/
All of my worst trades have happened whenever I’ve tried to short the market. Even when we give our forecasted peak for market tops, it has always been a range instead of a hard forecast. For example, in the last three corrections, we were able to buy right at the very lows. The very day we made big purchases, the market bottomed.
We did this in August with Tarly/Arryn. Did it in September with Lannister/Tyrell. Did it just recently with Stark/Frey. Stark/Frey went nearly 50% long on the very trading day the QQQ bottom out.
I can’t do that with any degree of precision at tops. Not even close. Sometimes we’ll get it right. But not to that level of precision. If I shorted the market, I wouldn’t get it that close unless I would just very lucky.
(jan23 10h20) AAPL has launched
Famous last words
Ouch AAPL gave it all back during USA president’s speech.
Apple’s run will start pretty soon. When it does, It will go up like every day for 15-days with 1-2 down sessions. It’l be explosive.