Samwise Quick Reference Handbook
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How do you feel with the “September Effect” as a logistical constraint? For example day 87 lands on a Monday (Aug 11), I guess the correction would likely last into September. I am more so just curious timing, we are up against the clock in the late stages, but it would also be unusual for September to be a good month, and that would likely be the case if we topped here and spiraled into a standard correction, the rally would be in September.
I doubt if we are following seasonality. Last year we had corrections in early august and september (2 of them). Then we rallied from there for elections. I am not sure it is following seasonality metrics.
So it’s both. September is the weakest month of the year seasonally speaking for the stock market. But august is also up there as one of the weaker month. Recently, it has been all August. The last few Augusts have been weak and that is largely due to rallies beginning in April-May.
To be honest, it’s more based on timing than anything else. It really just depends on when the rally begins and when a correction begins. Looking at the last decade, what you’ll find is that it’s not about August per se. August could be a very positive month or a very negative month. It’s often just sideways in a rally environment or caps a sell-off in a summer correction. Recently, the past few Augusts were negative. But if you go back further, every August from 2010 to 2022 is really random and based on preceding events. If we’re coming off of a major correction that bottoms in June (often the case) and the market is rallying in July, well then it’s probably rallying in August too (or consolidating). If the market began rallying in March or April, well then there’s a good chance that August is negative. See below:
August 2024
QQQ peaked in mid-July (July 15) after a 22% rally between March 2024 and July 2024. It then sustained a big correction that went into the month of August. The market then bottomed in early August (8/5) and proceeded to rally for most of the month before then sustaining another correction in September.
August 2023
The QQQ formed a double-top in July 2023 after a massive 89-day 36.6% record breaking rally and then begin an 8-9% correction. That correction extended to half of August. Mid-way through August, the QQQ rebounded until it began another leg down in September.
Interestingly, the rally that occurred in 2023 began on March 13, 2023 on ended on July 19, 2023 (89-sessions).
August 2022
For example, we have Augusts that are deep green due to the market selling off in May-June. In 2022, we had a really strong August rally due to a market sell-off that bottomed in June, double-bottomed in mid-July kicking off a rally that starts around July 18. So obviously you’re going to have a strong August, if the rally is just getting started after a correction that ends in mid-July.
That 25% rally ended in mid-August. It was a 1-month 25% rally. the bottom Really happened in June if we’re talking absolute low. But the rally really took off in early-mid-July after retest of the lows fell short.
The point is this. August can be strong if a correction begins in May (sell in may and go away).
But in our case here, the rally started April and is slated to end somewhere in the July-August-September time-frame.
August 2021
In 2021, we had a correction that stared in April and ended by mid-May. The market started rallying near the end of May. It went from $308 in late May 2021 to $373 in early September were it then underwent a correction in September. $373 to $342.
Again, we have a late May rally leading to a September peak. By mid-september the QQQ was down 6%.
August was largely positive in 2021. again, due to the rally beginning in late May.
August 2020 (covid rally)
August 2020 was a parabolic month with the QQQ absolutely skyrocketing until it peaked on the first day of September and crashed 15%. But July 2020 was also a very volatile month. The QQQ sustained TWO seprate 6% sell-offs in July 2020. August was vertical. September was a crash.
In 2020, the rally started March 23.
August 2019
July 2019 was a bad month for stocks. The QQQ fell 8.6% in July essentially sustaining a correction. That correction continued into August which was largely a highly volatile month with huge swings up and down. I count 10-swings of 2-3% or more in August 2019.
August 2018*
Positive August after a July sell-off of 4-5% to end the month of July. 2018 was a really odd year. The preceding correction ended early April 2018 like we have here. But there were several big sell-offs — I count four segments — ahead of an October 2018 major correction that lasted several months as we know.
6.31% first segment pull-back
4.95% second segment pull-back
4.74% third segment pull-back (late July)
3.78% fourth segment pull-back (September)
Crash in early October
2018 was a very different environment with a lot of volatility and much smaller returns. The rally only produced 22% overall and while it did last a long time, it violated the rules of sub-5% pull-back. The first segment pull-back was 6.31% and then the QQQ went on to have a 4.95%, 4.74% and 3.78% pull-backs. Those are all really big sell-offs that can drive a rally higher.
August 2017
Correction started in June 2017, ended in July with a HUGE rally and then August was very volatile. The July highs were $138.05 and the August highs were $138.64 occurring at the very end of the month. The lows for August 2017 were $132.58 or down 4% from the July highs.
2017 was a melt-up year so this type of volatility was actually significant for the times.
August 2016
Massive correction and bottom in June 2016 to end a year-long bear market. Massive rally from mid-June to mid-August with market trading sideways for half of August.
From highs in April to lows in June amounted to a 10% correction with a retest of the highs. Basically, we had a correction end in mid-June which makes August 2016 a poor compare.
August 2015
Massive crash in August 2015. QQQ fell some 20% in August 2015. What did we have going into it? A huge sideways market for all of 2015. The QQQ traded within a 10% range from $90 to $100. It tried to breakout with a surge at the end of July as the QQQ ran to $105 a share. It then plunged in August. QQQ went from $103 down to $78 a share in like 5-days.
Now really a good comparison, but August is negative here.
August 2014
We have a rally that begins on around April 14, 2014. The QQQ rallies 17.4% from mid-april to mid-July. So we’re talking a very very shallow rally here below the average 22%. The QQQ peaks in mid-July and sustains a 3.72% correction — which given the size of the total rally makes some degree of sense. August was positive with a surge up to $92.33 i.e. a 7.3% run. September was a disaster with a 10.2% correction that extended into mid-October.
August 2013
Melt-up environment. Correction began in late May and ended in late June. A 7.45% correction in total. July hugely positive. August sideways entirely. Rest of the year positive. From when the market bottomed in June 2013 until January 2014, the QQQ rallied 26% over 7-months before sustaining a 6% correction in January. That’s an average return of .17%. By comparison, we’ve rallied 41.5% in half that time. Nearly double the gains in half the time.
August 2012
Peak in April 2012 ahead of a larger correction of 12.5%. That correction bottomed in early June 2012. Both June and July were highly volatile months with huge swings up and down. No discoverable trend. August 2012 was a positive month where the market started to rally and recovery from the correction that ended in June. By mid-september, the QQQ peaked again and sustained another 12% correction that transpired in mid-September and ended middle of November.
August 2011
Disaster month. August 2011 was when the U.S. had its credit rating cut from AAA for the first time. The market panicked and crashed August 2011. The sell-off started late July 2011 and extended through August. 2011 was a highly volatile year with big swings up and down and without any long discernible rally. Instead, we witnessed big swings up occurring over 3-5 weeks and then big corrective-sized moves down.
August 2010
Last leg down in a correction that began in May. We had a summer sell-off that began with the whole May 6th flash crash. That was the summer Ben Bernanke had his Jackson Hole speech that set-up QE2. The market begin a huge rally from Jackson Hole on. But August 2010 was largely a sell-of month after a big rebound leg in July.
Hey Sam, This whole rally since has felt pretty weird. I know you have a lot more experience but all 3 pullbacks have been on the smaller side and the last one if you can even call it that was record small. So even though the previous pullbacks were small the market didn’t “make up” for it with a bigger pullback but rather the opposite. On top of that it was the longest pullback at 8 days (I remember you saying the typical time for a pullback is about 3-5 days). So it basically “pulled back” a mere 0.29% per day. Feels more like consolidation than some energetic pullback to me. I mean where is the cutoff for it being a pullback? 2%, 1,5%?
Just my thoughts that have been lingering in my mind..
Well not all three. The first pull-back is in-line. It’s right down the middle. 3.3% is a typical pull-back. That’s all you can really expect. The average is high becuase there hae been some really big pull-backs –almost correction sized — that are on the list. It pulls the average way up.
But if you look at the distribution, 3.3% is right in the middle. The other two are bottom thirds.
The cut-off for being a pull-back is probably right at where this last one happened. I think if go you under 2%, then it’s not really a pull-back.
If you can’t discern it on the chart, it’s not a pull-back.
—–
As the rally overall is concerned, this is all typical. Even the segment going for 25-days isn’t abnormal. It’s at the high end of the curve, but not abnormal or out of the ordinary in any way.
Currently, there’s nothing unusual or unpredictable about what the market is doing or how it is trading. It’s actually trading in a way that makes sense.
Remember, our forecast calls for correction occurring at some point in time between day 80 and day 100. That’s between July 31 and August 31 with there a more likely top to happen closer to July 31 due to the turn of the month.
An evaluation of the weekly chart seems to confirm that as does all of the historical data. Big correction begin big long-duration rallies. But all ofthe rallies have ended right at that 80-100 or before. 100 is the top-end of the range of which this rally definitely qualifies. Coming off of a 25% correction, a 100-day rally here makes some sense.
But nothing in the data suggests that it’s going to somehow go much further than that. If the QQQ is able to limp through August, well then you can expect a heavy sell-of right at the start of September.
The upside I showed above on August seasonally bears that out. The market feels very tired now as we end July. I can’t imagine it pushing through all of August this way too right? Most likely it’s a peak sometime between July 31 and first week or so of August.
That puts a correction low in at around mid-September. That’s how we see it now.
Sam are you thinking about adding additional puts on Nvidia that date past September? It seems no matter happens it keeps going up?
So as we noted a few times in the daily briefing, the goal is to do a few things as Nvidia is concerned. First, we need the QQQ rally to extend beyond Day 80 before we put on a second set of trades.
IF and when teh QQQ goes beyond Day 80, we’ll have to assess where Nvidia is at the time and then our plan is to do TWO things as Nvidia is concerned.
(1) we plan to DOUBLE or even potentially TRIPLE the number of contracts we bought in the September $150 Nvidia puts. We want to do this because when Nvidia ultimately actually sells-off in the next correction, it will help us exit at or close to break-even or with gains. If we can reduce our cost-basis from $8.35 down to $3.50-$5.00, that’s a huge bump.
A correction from $180 down to $150 alone will likely I’ve us a clear exit.
(2) On top of doubling or tripling our contract numbers (2 contracts to 4 contract or 2 to 6), we plan to buy or allocate to a new October put at maybe the $160-$170 strike. We don’t know yet. We have to get there.
We may just only buy the QQQ put-spreads instead because I do think an October $540-$530 put-spread in the QQQ is a really strong bet with the QQQ trading beyond day 80.
Hi Sam,
Wanted to get your thoughts about something you mentioned in a previous briefing and whether it still stands considering the current price of the QQQ:
https://sam-weiss.com/rally-day-71-segment-on-qqq-extends-to-7-85-hinting-at-a-peak-next-week/
A 12% correction with the QQQ topping at $570 will result in a bottom around $500. Do we still think the QQQ will try to fill the weekly gap and drop to $480 range like you’ve mentioned?
Thanks!
It might fill the gap if the QQQ tops at 570 it’s still within reason. At a minimum it will be tested. Like we should get down there and then test the 500 gap. But I don’t know if it will fill. It really just depends on how severe the correction is.
If the QQ goes any higher than 570 to 580 then it’s unlikely to fill the gap. It will just test it.
If the QQQ had peaked anywhere near 550 or 560 a share, then the probability would be high for a gap fill.
But now that we’re at 570 it’s a much larger move down to fill the gap
?? Sam
Your question is answered in the daily briefing my guy
Hello Sam,
Now that QQQ is at $570, it will have to drop at least 12% to close the gap to $500, or even $490?
So NVIDIA’s decline would be at least 28% to close the gap from $180 to $130?
Or, two other scenarios (to validate their probabilities):
1) QQQ and NVIDIA continue the rally and then a sharp correction
2) QQQ and NVIDIA experience a much larger decline
Looking forward,
Karl
Sam ?
Very tempting to add to positions today.
Not sure yet. What is becoming increasingly clear is that an intermediate term top is imminent.
We have deeply overbought the late stage on the SPY. We don’t quite have it on the QQQ but the SPY is broad market so if the SPY starts to roll over so will the QQQ.
We will take a closer look at it today, but the SPY is deeply overbought. And like the QQQ when that has happened, historically it has been an indication that we are right near an intermediate term peak. I’ll post about it today.
I want to get to the 80-day Mark because then from there it’s a four week likely topping range. Which gives us a more reasonable window.
What people will need to realize is that there is going to be a likely draw down on whatever trade we put on meaning the trade is likely to turn very negative before it turns positive
Because there’s no way to a top perfectly in the same way that you might time a bottom.
Hence, why we put on very very small trades for big returns if we’re right
That way, we’re only losing a tiny amount of money on the draw down and making a big return when it all works out.