Samwise Quick Reference Handbook
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What does this move up suggest Sam?
Still uncertain. If we get north of $580, then we’re on a 5th segment at that point. We’re already arguably high enough to be a small 5th segment. But that’s all meaningless in the end of its all tops out at $585 anyway. We’re just about 7.00 points away from where a normal 4th/5th segment would typically end. We compiled a list a few weeks back. It’s about 6-7%. 6% is $584.78 and 7% is $590.29. So somewhere in that range is where a 4th/5th segment might top out. That makes sense.
Once we approach $600, it can top out short of $600 in the $580’s — we saw that back in July 2023 when the QQQ peaked at $388 (12-points shy of $400) — or can it hit $592-$593 and fail or fail just under $600 or just above. All of those things occur with regularity for stocks in general.
Just above $600. Just below $600. 8-12 points below $600 also very typical. And that all sort of intersects with the expected segment move.
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What’s still unclear is whether we’re still on retest. Could be a breakout. But for that to be the case, we actually have to breakout. Meaning, the SPY must sustain trade north of $640 and the QQQ needs to go north of $580 or no breakout.
QQQ now oversold on daily ~70 and hourly ~77
Hi Sam,
What are these gaps you’re talking about? I’m only seeing one gap from $532-536ish. Was this a typo?
Thanks!
Yeah that’s an eyeball mistake. The $520 was subsequently filled down the line. But there is a gap down at $532 to $536. That’s probably where it goes.
Sam, is it possible that we are currently in an environment where extreme situations are more likely to occur? I’m not saying “this time is different,” but rather that the current complex international environment, combined with the Matthew effect, might make extreme scenarios more likely. I have a bad feeling that QQQ could break above 600, something I had never considered before.
There’s no way to coherently answer this question. Here’s what you’re essentially asking:
Might this environment might lead to more “extremes” because THIS particular environment has the following factors absent from all previous environments:
(1) current complex international environment + (2) Matthew effect
SO let’s evaluate:
First, if the Matthew effect had any impact at all, then it would mean that every new rally should be larger and larger and longer and longer. We’re not seeing that. The Matthew has been around since colonization. But we’re still seeing random distribution. Right? Think about it. If the Matthew effect (compounding wealth) somehow drove markets to extremes over time, then we should see longer and longer and longer rallies progressively on each subsequent rally. The Covid rally at 114 days and 84% should have been far surpassed by all subsequent rallies such that we should now be at 384 day rallies and 193% returns. But empirically, that isn’t occurring. The Matthew effect seems to have no impact on the size and duration of rallies. If the demand side increases due to wealth expansion, so does the supply side.
And even if the Matthew effect is having an impact, how do you quantify it? And how can anyone even possibly know what that quantifiable impact is and how it will manifest in the stock market? What’s more, we can definitively say that all past environments had the Matthew effect.
Second, “as Complex international environment” is concerned, I can guarantee you that every previous environment felt that their international environment was just as complex if not more complex.
You have TWO different assumptions to deal with here. First, that this international environment is indeed complex or “more complex” than previous ones. And secondly, you’d need to tie that to the stock market rally somehow being now stronger than all previous rallies because of the complex international environment.
Also, wow does one quantify the impact of said “complex international environment” IS THE issue. It’s not easily quantifiable. You can’t really determine the impact if any at all. How can anyone determine that this rally will now last 123 days instead of 89-days because of the “complex international environment?” See how that doesn’t quite work?
There’s no way I can answer this question. But I can tell you this. If you go back and read the daily comments for the past month, you’ll find different comments like this with different variables at play. No one is quite saying “This time will be different,” but they are essentially asking that core question. Will this environment lead to more extremes is the same as asking, “will this environment be different than past ones such that this rally will last longer or bigger due to X & Y variables not presumably present in past environments?”
One question was regarding the crypto market impacting the rally. Another was indirect QE. There are countless things that anyone can point to and ask, “is it possible that we are currently in an environment where extreme situations are more likely to occur?”
Yes. It’s possible. It’s possible in every single past environment as well. The potential for “extremes” exists as a potential in every rally.
And there’s no way to say that the potential doesn’t exist. It’s there in every rally as an underlying and unquantifable risk. You can guess. But that’s the best you’ll get. Is a pure shot in the dark guess.
Still, we have the distribution that we have. The risk is that the trend fails. There’s no way to opt out of that. There’s no way to know whether this time that risk will materialize.
The trend says one thing. The risk says another. No different than when you walk onto an aircraft, yours can be the 1 in 7,000,000 that crashes. 6,999,999 prior aircrafts landed their passengers safely and 1 crashed. There’s no way to guess which one will crash ahead of time.
To date there has only ever been ONE THING that has definitively caused extremes on a consistent basis. QE. That’s it. The era between 2013 and 2018 was rife with QE-melt-up rallies that lasted 140-150 days. They were characteristically different than the current environment though.
Sill, there’s no way to answer this question. It’s a risk. The anxiety that the QQQ might rally above $600 is natural when you’ve taken a different position. If we were all unhedged a super long, the anxiety would be that the market is going to crash. The anxiety is the opposite of whatever we’re doing at the time.
It’s starting to get harder and harder to buy the puts. I know now is the right time with the rally being this long, but it still feels like lighting money on fire. Ugh 🙁
Yeah I’d say don’t do it. Bad idea. There are very specific reasons we’re doing it in the portfolios that we’re doing them in.
But overall, not a good idea. Because chances are we’re buying them not at the exact top. That is extremely unlikely.
As I mentioned, they’l probably drop 70% before we make a profit and the risk is high. Hence why we’ve bought in at 3%.
Heading right into a correction after the end of 5th segment most likely?
120+ rally with no correction confirmed! but I feel like it’s always that case where it will drop if I start buying calls
NVDA doesn’t look like it has it to run to $200 this time around
Sam. J P Morgan just said they at least expect 4 rate cuts by the end of the year. How will the upcoming rate cuts in a little over a month affect a correction? It feels like there won’t be a correction it will keep on going up especially because of the multiple rate cuts expected?
The fact that you can argue this taking place will actually lead to the complete opposite (increase the odds of a correction kicking off or accelerating as it potentially signals the fed caving to political pressure and losing its independence and/or creating an inflationary environment with such steep and sudden cuts) kinda underscores how it’s hard to really read into stuff like this. US entered a war a month ago and the market shrugged it off. Positive China tariff news today and we’re up 1% when it led to a huge rip a month ago the first time they agreed to a truce
You could just as easily read into this being a negative for the market if you wanted to, no? (“fed caving to political pressure and losing its independence”, “analysts say cutting rates too fast will cause inflation to skyrocket!!!”). In fact, if the market was down 10 bps instead of up, I’d bet you would have that narrative out there somewhere, even if though the data would be the exact same. There are some things that probably cause short-term rips/downturns (like the recent MSFT/META) earnings but even that lost steam quickly. Up 10 bps at $575 to down 20 bps the next day. Seems very unlikely that the overwhelming majority of this stuff materially changes the direction the market was going to go intermediate/long-term anyway
A Dhindsa is right on the money. Also, you never want to take a reactionary perspective to the market.
Known information isn’t going to be the basis upon which the market rallies or fall.
Supply demand profit-taking these are the things that impact the timing of corrections.
Fundamentals are a long-term impact. They don’t drive what happens in the near term.
What will happen to our NVDA Sep Put Sam ?
Really, a lot can happen and happen very fast. This is the drawdown risk he’s speaking of.
There’s still 26 trading days, not including today, until Sept 19 exp. With calls and puts, a move right after buying is most profitable, whereas with spreads, max value is realized in the direction and closest to exp.
Not even accounting increased volatility, value on Sep 12 at various strikes:
$165 is $0.41;
$160 is $1.00;
$155 is $2.15;
$150 is $4.08;
$145 is $7.00
Any of these strikes at an earlier time and the value is much higher, for example, a sharp move down to $160 by August 25 is ~$4.00.
FWIW, NVDA feels really weak, I just don’t see it getting to $200 before the correction, but maybe it does.