Samwise Quick Reference Handbook
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So are you now expecting a dip off of overbought, a bit of a recovery and then the correction? Or is the market pulling back straight into the correction still a likely outcome?
What I’m saying is that the QQQ is now BOTH due for a correction and a near-term pull-back. The near-term pull-back doesn’t need to lead to any sort of a bounce. It can bounce or the QQQ can just lead right into correction.
We won’t know until we see it.
The overall pattern on the daily chart, the fact that we’re now at week 24, the fact that the rally is now at 111-days and 47%+ returns, all of these things point to a correction happening soon.
The overbought near-term indicates that near-term we’re due for a sharp pull-back. But I do think that could easily be set aside until after the Fed. Like the QQQ can easily close at its highs today and run again tomorrow. It could run to $600 as we head into the fed and reach an 85-90-RSI. It has happened before.
The consequence of that is an immediate pull-back right after though. Nearly every time we’ve seen the QQQ push north of an 80-RSI it lead to a 4% pull-back. We’ve seen it happen 5 times this year. All 5 lead to 4%+ pull-backs.
One occurred in July 2024 leading right into the 16% correction. One occurred at the peak in August 2024 leading to the 8% September correction. One occurred in November 2024 after the election. The QQQ fell from $515 to $495 (3.88%). One occurred in late December. That lead to a delayed pull-back a few weeks later of 6% as the QQQ went from $540 down to $509. We kinda skipped the pullback for a bit after that. The QQQ pulled back 5-6 points — nothing major — rallied for a week or so and then crashed. Then we saw the QQQ reach deeply overbought during this very rally when reached $520. It pulled back to $505 a share or 3%.
We’re not quite at those level right now, but if the QQQ closed at its highs today and then ran tomorrow and Wednesday up to $600, it would be. It would set the market up for a 3-4% pull-back down to $578-$582.
Hello Sam,
I imagine it’s far too early to talk about strengthening long NVIDIA and QQQ stocks, given the current PRU.
Should we wait until we reach the gap zone of the chart? Is the major gap zone still reachable within 10 to 15 days of decline, according to your previous article (or comment, I can’t remember!), or do current conditions make it impossible to predict the duration of the pullback?
Best
Karl
So I don’t really try and predict duration for the pull-back. We generally know what the duration range is likely to be. If you look at corrections in the NASDAQ tables, the average is 23 days. They tend to range 15-25 days. The one in April lasted 35-days — that’s 2 weeks beyond the typical 15-25 days range.
More important than duration is how it unfolds. When it unfolds, we’ll have a better idea of duration.
It’s not duration that typically indicates a bottom. It’s when the QQQ reaches oversold levels that tell us when it’s bottoming.
But with the April correction we knew it was nearing an end by pushing to 35-days. That’s a very long time for correction.
So I guess we only consider duration when a correction has exceeded its typical range (15-25 days).
We’re not taking action until the correction is actually full steam.
By full potential, do you mean well advanced between 15 and 35 days?
So I don’t know what it will be. I’m just showing you what the data says. There are two tables of data SHOW the general range of corrections. You can find them here:
https://sam-weiss.com/nasdaq-100-qqq-corrections-rallies/
TABLE 1 shows all past corrections going back to 2010. Notice how MOST corrections end by Day 20. MOST. More than half of all corrections only last 1-19 days.
Then you have about 30-40% of them that last more than 20-days.
ALL BUT 6 corrections ended by Day 28.
You can extrapolate the data all on your own. I don’t know how long this will last at all. We have ZERO hints at all. None. No indications about this SPECIFIC correction.
What we do know is that all past corrections lasted 15-25 days. That’s the general range. In fact, if you predict that the correction will last 28-days or less, you are 85% likely to be correct. That’s because 85% of all past corrections ended at 28-days or less.
ONLY SIX (6) out of 48 total corrections going back to 2010 lasted more than 28-days. That’s it. 12.5%.
Meaning, nearly only 1 out of every 10 corrections lasted more than 28-days.
^this is what I’m basing duration on.
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IN terms of when and where to buy, we don’t have firm price targets. What we know is that MOST corrections range between a minimum of 8% to 12%.
That’s what we’ve seen historically. Nearly every single rally north of 20% returns resulted in an 8%+ pull-back.
For example, sort Table 4.1 for correction size. You’ll see that the only time we’ve seen less than an 8% correction is when the rally size was 13-18% with a single exception of the QE2 rally (26%) that resulted in a 5.89% correction.
But every other rally north of 20% saw corrections of 8% – 30%. The average is 12.79%. The median is 11.5%.
This is why we expect to see a 10% correction with a minimum 8% sell-off. We expect the correction to last between 15 and 25 sessions from the peak.
So if today was the peak, then 15-25 sessions. 15-25 sessions encompasses 80% of all past corrections. That’s the general range. 8-12% and 15-25 days describes MOST corrections.
if the century mark theory (peak at or above the next century mark and then drop) holds for the QQQ and SPY, wouldn’t the SPY in this case gravitate towards $700 a share which would push the QQQ way past the $600 max ceiling target?
No. It’s too far. The gravity starts to pull at $X80. So once a stock gets up to $X80, the chances of testing the next century mark goes up pretty dramatically. But the SPY is too far and is stretched just to get where it is right now.
There’s also heavy resistance at that level. Note how long the QQQ has been struggling since reaching $574 for example. Since that time it has been a struggle for every point. On the one hand, there’s a strong gravitational pull toward the $600 level. On the other hand, there’s heavy resistance as investors sell into what they correctly perceive as high end of the range for the rally.
As we pointed out in the briefing, in the grand scheme of things, $575 – $600 will be the high end of the rally. When looking back at the rally, those prices will encompass the peak of the run.
One thing I didn’t mention is the impact going through two century marks has. The fact that the QQQ started at $400 and had to burst through $500 significantly reduces the likelihood it ever getting through $600. In fact from the very start of the run, this is known. Getting through $500 puts very heavy resistance on $600. And this is well understood from the get go. It mostly applies to indices.
The QQQ won’t be able to get through two different century marks without a correction. It never has. Neither has the SPY. It just doesn’t have the momentum for it.
The SPY peak zone is where it is now. $640 – $660 a share. I don’t think we see much penetration beyond that.
When you look at past SPY peaks, here they are:
Current Target Top = $660 zone
Dec – Feb 2025 Top = $600 a share
July 2024 Top = $560
March 2024 Top = $510 (essentially $500)
July 2023 top = $450
You can see it alternates between mid-century and century marks. We have the same thing going on the QQQ as well. We see the same sort of thing:
Current Target Top = $600 Zone
Dec – February 2025 Top = $540
July 2024 Top = $500
March 2024 Top = $446
July 2023 Top = $388 (essentially $400)
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We should have really sniffed it out. Once the QQQ reached $574, the odds really increase pretty drastically. But then you get tops like 2023 where the QQQ peaks at $388. So that’s the concern. A test of the century mark doesn’t have to reach the actual century mark.
Like if the QQQ ultimately peaks today at $593, I’d still call that an attempt to take out $600. That’s a mere $7 away.
And I think now that the QQQ is right here near $600, it’s hard to see how it doesn’t take a shot. It could play out like 2023. But I think it’s now far more likely to test $600 before it rolls over. Tough then again, we are at day 112 and the rally has extended to 47% now. It’s kind of at extremes. Whatever occurs, peak here or peak at $600, both have very strong argument and both in retrospect will sound obviously.
Peak at $600, it was so obvious because we came within $7 of reaching it. Should have known it would happen. It is the obvious outcome after such a long run.
Peak at $593 today, it was so obvious because the QQQ was at extremes. The rally extended to 4-weeks. The stock was tired. It reached deeply overbought on teh hourly and sold-off on the fed. It didn’t have the momentum to push the rest of the way. 7-points in this environment is a lot. The QQQ is struggling to add points right now. Every point from $580 to where we are right now has been a struggle.
So I can see it playing out either way.
I personally just don’t want to see corrections at this point..it makes our thought process much easier to just buy call spreads..lol
Sam, hypothetically say that mighty Stark didn’t sold covered call over all it’s 400 and 500 calls. Could you discuss what Stark would do this week with his long calls and put hedges?