Samwise Quick Reference Handbook
To streamline our daily blogs and conserve space, we’ve organized key resources into a convenient, collapsible dropdown menu below. A sort of Quick Reference Handbook if you will -- as our friends in aviation might call it. By clicking the menu below, you’ll have qu...
Please login to view this page.
AAPL touching oversold on hourly & below midline on daily. Would this be an opportunity for a short-term trade @Baratheon/Targaryen and/or opening a long-term position @Stark if you had missed a lower entry before?
Not oversold enough yet. It may rebound, but it’s not oversold enough to the point where we’d be interested in a trade. For us to get interested and/or confident in a trade, we’d need to see a 20-RSI on the hourly.
As Stark is concerned, it only really works as a portfolio as a whole. I remember mentioning a month or so ago that I had zero concerned for Stark when it was down 34-35% during the downturn. I think it may have even reached -40% down at its lows at one point.
But the reason I had very little doubt in its eventual recovery and the reason we’re behind it is because of all of the component parts.
The hedge we put on was critically important and it is precisely what made the portfolio work. No hedge and the portfolio is largely deep in the red right now. In fact, the hedge accounts for a $7,769 off-set which we were then able to use to go long the June 2027 $400 call as the lows. We rode the rally completely unhedged and then recently re-entered a new hedge representing 13% of the entire portfolio.
Had we not purchase the Jan 2026 $500 puts to hedge and then sold them for a $7,769 gain, we would not have been able to buy the June 2027 $400 calls at the lows which is now up $10,526 or 61.2%. So we essentially made $18,300 (or 18.3%) on the portfolio all due to the hedge. Everything else is recovering. Those components were critical.
If we had gone 100% long, we’d probably be down 30% right now as we’d be unable to flip the hedge to go long at the lows.
The point is it’s difficult to speak to one component of the portfolio as it works as a whole. If someone had followed every single thing we did in stark except for owning Apple and then decided to buy Apple now, of course they’d be way better off because we’re down $4,656 on Apple right now which is a portfolio hit of 4.66%.
But without the other component, not so sure we’d be buyers of Apple here if that makes sense. Within the context of stark all else being exactly the same — meaning one would be up 7-8% and holding $10k extra cash — then sure. But just randomly, not so sure.
Hi Sam,
We briefly talked about trading out of our NVDA July spreads ahead of a potential 493 intermediate QQQ top so we can reposition on the inevitable pullback. Are we still thinking that’s a good idea seeing the QQQ is due for pullback or is there too much time value and execution risk now with the real chance of the QQQ taking off without us if we have poor timing for exit and re-entry?
Thanks!
The reason we wanted to make that trade — and really we should have done so — is because Nviida had reached overbought and was due for a pull-back. It reached overbought at $111 and pulled back to $102-$103 right on queue. It did exactly what we expected would occur. Pulled back $7-8 and the rebounded back to its recent highs.
The problem right now is that Nvidia isn’t overbought. If it becomes overbought, then that opportunity will once again present itself.
For now, there’s too much upside risk in the market generally. Selling at overbought ensures we’ll be able to AT LEAST buy back at where we sold in most cases.
Thanks for all this Sam. It’s a little unclear to me in regard to the 4-5% pullback. It sounds like that’s happening regardless whether it happens right here, at $500, or at $510, but what’s unclear is you also mention we are due for 7-10% which would be a correction? I thought there was typically 90-100 trading sessions in between corrections, yet you mention 20 days is on the high end of rallies.
You also mention bear risk and stress respecting that risk. How will we know the pullback stops at $470 or if we’re going to make new lows? Entering spreads there simply to capture the oversold bounce and exit?
So let address some of this. You’re a little off on some things.
This is true. Whether we stop here or move up another $10-$15, we’re getting a 4-5% pull-back very soon because the QQQ has been trading overbought for too long now.
So not quite. It’s not that we’re due for a 7-10% pull-back, what I’ve outlined is that the contrarian data (Tables 1-2 in Feb 2025 Correction page) has now been fulfilled. Meaning, we can no longer lean on the fact that the QQQ had reached a 20-RSI and that it had sustained a 25% correction to expect more upside.
When the QQQ had reached $402 a share reaching deeply oversold conditions, we knew with a HIGH degree of certainty that the QQQ would likely rebound 20% and that we’d see a multi-week rebound (partly due to weekly being oversold). All of that has been met.
It does’t mean that we will see a 7-9% correction, just that the market has fulfilled its targets.
However…if the QQQ continues to move higher and we start to see the data points get to the extreme positive end of the data spectrum, then the risk of a 7-10% correction skyrockets.
FOR EXAMPLE… 50-89 sessions is the far end of the curve. The top 15ish rallies all went for 50-89 sessions in terms of duration. So if we see the QQQ chugging along at 60 sessions, we can really start to worry at that point.
For the 30-RSi table, that number is closer to 35-40 sessions. That’s if we’re counting oversold rallies. We’re at 20-sessions now. So 15 more days, we’re at the far end of an oversold bounce.
Percentage wise, we’ve seen 11 rallies go for 20% or more. That puts this current rally already in the top 20-25%. At 22%, it’s now the 9th largest post-correction rally on record. That’s to be expected considering we just came off the 4th largest correction on record (going back to 2010).
The point I was making regarding the 7-10% pull-back is that if we start to see this rally push into the 25-30% category, then we’re now at the very high end of the range. we should start to worry about a larger pullback at that point. We can kind of worry about it now since 22% is top 9. At $502.50, the rally will have extended to 25% and put this at top 6 all-time. At $523-$524, it would be the 2nd largest rail. To match Covid, the QQQ would need to rally to $570 without a major pull-back (7-10%).
20-days is the high end of a post-30-RSi rebound. It’s still below the median for post-correction rallies. Rallies are typically 70-sessions with 100 being the record. The actual record is at 100 sessions. This is going back to 2007. Obviously that excludes melt-up rallies. This definitely is NOT a melt-up rally. Melt-up rallies would have taken the QQq to $490 after 120 days. We’re doing it 6x faster than a melt-up.
But the point is that for regular major rallies, 70-days is the average. 100 is the max. We typically fall somewhere in and around 70-sessions FOR MOST rallies.
There’s no easy way to know this. Here’s how to think about it. From a trading perspective, there’s no way to be certain. In most case, when the QQQ reaches oversold, it rebounds. That’s true in like 90-95% of ALL oversold set-ups. If you go back and count them one by one, you’re going find that something between 1 in 10 to 1 in 15 fails. In most case, you get to oversold (30-RSI), you can expect a rebound. That is even more true if you get to a 20-RSI. Get to a 20-RSI and the failure rate is closer to 1-in-20 or less. It’s so rare for the QQQ to not immediately rebound after reaching a 20-RSI like we saw during this correction.
So when you go into trades, you assume that small risk of failure. There’s not much to be done about it. You can try and hedge it, and if you do, you typically end up with very marginal gain and often it doesn’t work well.
The other way to go about it is to trade leaps. So you can put on trades for smaller percentage gains if you want to trade those near-term oversold set-ups but don’t want to get hit on the sell-off. You end up giving up a big portion of the potential returns doing so. But it is very effective at combating the risk of failure as the QQQ almost always returns to where it was eventually. If you’re sitting in leaps, the drawdown is more easily handled.
Long-term investing we’re good either way. We’ve hedged it all out and we make broad-based decision at ultimate turning points.
We won’t know when it gets down to $470 with certainty that the market is doing sell-off. But if the QQQ is oversold and the selling looks lackluster or not all that aggressive, then there’s a good chance we get a near-term bottom and bounce as expected.
is there a correlation between market changing direction (up vs. low) and the trade volume?
What I noticed during the liberation day mass was abnormally high volume during the capitulation (As expected) but then while market went further down slightly, volume was very low. I see same pattern today – market went up for a while, today kept going higher after opening low but with very little volume making me think that direction change is again imminent (may that’s the 4-5% pullback we’re due for)
So volume can be a predictor in capitulation events like you saw. But I wouldn’t look at it at such a microscopic level at all. There are plenty of cases where the market rallies on very low volume. In fact, historically in the pre-2009 era, low volume used to be an indication that the rally is suspect and likely to reverse course. Post-2009, we saw that rule violated time and time again.
Now we get low volume rallies all the time. Daily volumes right now is still relatively elevated when compared to the pre-correction environment. But expect it to trail off as the market rises.
It sounds like we pullback a wee bit, bounce back to that 490-500 area, then depending on where we go from there will determine the entire bull or bear market. Alternatively, it seems if we drop through $470 entirely, with gusto, then stay tuned… probably depends on the drop and will need to assess further.
Got my popcorn.
Hi Sam
Do you think the weakening dollar & rising yields could be the next potential existential risk to the market down the road?
Can it be more sinister than liberation day?
Just wanna hear your view on this
It’s all reflected in the technicals. All anxieties, news and fundamentals are reflected in what we already see on a day to day basis. It’s all built in. The NASDAQ-100 rebounding 22% over 20-sessions is all built into it.
There are far too many factors that can feed into an overall fundamental-based projection model for anyone to be able to make a meaningful forecast.
Hence why we look to the technicals to make our projections. Because it’s all built into the model already.
The problem of trying to assess the impact of the divergence between U.S. treasury yields and the U.S. dollar is that the divergence itself could be the result of any number of factors. If inflation expectations are high, you get that divergence. If there’s a drop-off in foreign demand for U.S. currency due to a deterioration of faith in U.S. fiscal policy, you can get a divergence. If foreign capital exits U.S. capital assets, it can lead to a divergence between yields and the dollar. There’s no way to know the intentions of the cumulative total of all investors to be able to determine the direct cause of the divergence. It’s a probably a mix of inflation expectations and deteriorating faith in U.S. fiscal policy due to tariffs.
The result of that divergence is an indication of future volatility likely ahead in the market. But we already know that is likely the case given the size of the correction we just sustained. At some point this year, we will see another harsh sell-off. It might not be as big as the sell-off we saw in February – April, but we’re likely to see another major correction between now and January.
For example, at the end of the Covid rally, the QQQ sustained a 16% correction in Sep/Oct 2020. We had the 30% correction in February – March, the market rallied pretty much non-stop in August-September and then it sustained another correction in the fall.
We’re probably in for a very similar situation and divergent dollar/yields is an indication of likely future volatility.
Does today’s short lived drop 478 count as the sharp pullback? I don’t believe the QQQ even reached oversold
Yea I’m thinking the same. It doesn’t seem like it wants to pullback. Maybe we’re waiting on some news to trigger?
Good point.
No. Not even close. We’re barely under the mid-line.