Samwise Quick Reference Handbook
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Hi Sam,
Are we still thinking NVDA will drop ~23% during the correction? Or does the extended move warrant a more aggressive correction in NVDA? I remember you talking about how the smallest correction for NVDA was 23% in a Daily Briefing, but I can’t seem to find it anymore.
Thanks!
So really it’s based on what the market does. If the QQQ falls 10%, chances are Nivida falls closer to 27%. If the QQQ falls 8%, we can expect 22-23%. We’ve seen that happenTHREE times with Nvidia. An 8% drop seems to correlate with 22-23%. And that also seems to be the minimum floor for Nvidia.
If the QQQ falls 12-14%, expect a 30%+ drop in Nvidia as we’ve seen repeatedly in big corrections. A drop from $180 down o $130 makes sense to me. That’s the new trading range and likely to happen in a 10% drop in the QQQ. Generally speaking, the low of the new trading range should sit near the middle of the preceding range. The preceding range was $100 to $150. So $125/$130 for the low end of the range up to $180 makes sense.
The next range will be something like $180-$230. But at $200 I think Nvidia runs into valuation issues and will become a sloth like Apple.
So buying NVIDIA long and NVDL in April at this price below $95 was unprecedented? Remember, we didn’t think we’d see NVIDIA fall below $95 in April! It still seems likely to me that NVIDIA will see it between $100 and $120, even though it’s approaching $180. So, are you never going to increase your NVIDIA long and NVDL position again, because the PRU would be too high if you bought at $130?
Hi Karl — so I’m not sure I follow the logic here. Let me try and answer this best I can.
Yes. It was definitely unprecedented. Let me explain why. The only way Nvidia was able to fall under $100 was because the QQQ was down 25%. That is very unprecedented. Since 2003, the QQQ has fallen 25% or more on only FIVE occasions. Two were bear markets (2008 & 2022), one was a flash crash where it fell 20 and recovered the entire loss on the same day (2015), one was the Covid crash and then what we just saw in April.
2008
2015
2020
2022
2025
You see how rare that is? 7-years, 5-years, 2-years and 3-years. That’s the amount of separation between the events and really 2015 was kind of an outlier event.
Anyway, the point here is this, the QQQ doesn’t fall by 25% all that often. And that’s what was required to get Nvidia under $100.
It’s extremely unlikely to ever get down there again. Extremely unlikely. Like 0.001% unlikely. We’d need a full blown market melt-down. It is too high to get down to $100 a share again.
As we’ve discussed extensively here. If you read the daily briefing, Nvidia goes through trading ranges. There was a time when Nvidia trading between $40 and $50 a share. That time is LONG GONE. Never going to happen again. Ai would have to disappear.
Then there was a time when traded in the $70-$97 trading range. Then it spent nearly a year in the $100-$140 trading range. Now it’s in a new trading range. That’s probably $130-$180. Maybe in a big enough correction it could get down to $120. But very unlikely. To get down to $130, the market must have a 10-12% correction.
—
Yes. Because it would require the market to fall by 20-25% to get there. It’s not a standard assumption. We don’t assume the market is going to drop 20-25%. We hedge for it. But that’s never going to be our base case. We’re hedged (insured) against any possibility of Nvidia falling under $130. We make money if it happens. But that’s now what we actually bet on.
You have to separate what is POSSIBLE from what is PROBABLE. It’s possible (0.01% chance that Nvidia falls under $100) but very improbably unlikely to happen.
It’s possible. But I wouldn’t bet on that.
We would buy Nvidia at $150 FULL STEAM if it were oversold. We don’t buy on anyting other than valuation AND overbought/oversold indicators.
Let me give you an example. Suppose Nvidia rallied to $220 a share. It then fell 22% to $170 become deeply oversold. The QQQ also sustained a 10% correction and is deeply oversold. We’d have no problem buying Nvidia with two fists. 25% allocation straight up at $170.
We are long Nvidia with entires around $100-$120. We sold the September $150 calls at around $10. If Nvidia is north of $160 come September, we’re exiting our positions and then buying them back in the next correction.
Nvidia is overvalued for today. At $180 today it is overvalued due to how far it has rallied without a correction. Once it rallied above $160 it was due for a 22-27% correction. That’s how we see it. That’s why we sold covered calls and are fine exiting at $160 come September. Because we’ll buy back at a lower price.
We’re exiting because the stock is up 100%+. We’re buying back once it sustains a regular correction and becomes oversold again. That’s likely to happen within the next month or so.
Hi Sam,
Sorry if this is a stupid question, but how do we have so many rallies that have lasted 19-20+ weeks when the QQQ tables only show a single row with a rally duration of 100+ days?
Thanks!
So this happens in three ways. First, if the first day of a rally begins on a Friday well then you have an extra weekly bar. We count the week that we bought, which could be four extra days.
The same goes for market peaks. Suppose the market peaks on a Monday lead into a correction. That adds an extra week to the rally. Had the market topped on a Friday it would be one less weekly bar.
So it’s possible you could have as many as eight extra days. Or put another way, you can have a 20 week rally that ends on day 92.
Secondly, the weekly bar is includes holiday.
Third, and probably by far the most impactful is that when we’re looking at the weekly, we’re not so much looking at the absolute peak and the absolute bottom as we do when looking at the NASDAQ 100 tables.
Sometimes it works out that way, but other times we’re looking at when did the correction start?
And in some cases, you might have a couple weeks of sideways trading before the selling actually takes place
And finally, during the post 2022 era, we have a lot of 89 to 100 day runs
In fact, this is now the fourth run in this bull market era that might fall in that 89 to 100 day.
We have had three previous rallies since 2023 that extended to that range.
Another big difference between counting the time of a rally and counting the number of weekly bars is that the methodology differs slightly.
Let me give you an example. after the Covid correction there was a second 10% sell off
We don’t count the start of the next rally until after that second 10% off. On the weekly chart, we do count it because we’re just looking at how long it took to go from the end of one correction to the beginning of the next correction. We were asked for the rally. We just count the period beginning from when the rally actually began
So difference is a methodology can count for the difference
That same difference was also present in the August 20 24 to January 2024 rally
Then you have consolidation periods as I mentioned that get counted into the weekly chart, but don’t get counted when we’re looking at strictly the day the market bottomed and the day the market topped.
Instead, what we do is we count that consolidation. Into the correction. With a few exceptions where the consolidation period was extremely long.
Hey Sam, rookie question. These are put debit spreads you are referring to for the 540/530 QQQ? (Vs credit spreads)
Debit spreads.
Credit spreads means we’re SHORT the spreads (high risk). We’re long the spreads. We’ll never go short a spread due to risk.
We buy to open long lower strike on calls (vertical debit call-spread)
Buy to Open long upper strike on puts (vertical debit put-spread).
Long the upper strike puts. Short the lower strike puts.
Long the lower strike calls. Short the upper strike calls.
We’re essentially going long one call and selling a higher call against it.
Going long one put and selling a lower strike put against the long put.
What do you think about this post-market gap up ?