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...
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time to get paid i guess, hoping the rally extends a few more days and goes to 578+ on QQQ or we get extended a bit time wise with consolidation for a third entry.
got bamboozled again
For what it’s worth, the price of NVDA behaved similarly in the weeks leading up to the August 2024 earnings report, and I remember that the day after the ER felt distinctly muted compared to what the news outlets implied would be the expected move by the end of the week.
If the price of NVDA follows the same pattern as it did 1 year ago, next week will be a very, very red week for Nvidia. Similarly to last year, Nvidia completed its August earnings call at the end of a massive summer-long rally, right before a holiday weekend (Labor Day) which ushers in a new month (September, historically the worst trading month of the year, especially for tech stocks). Additionally, as Sam has accurately pointed out before, the first week of the month is often the period when a stock’s price reverses direction that it was heading. Lastly, *unlike* in August 2024, there has been virtually no profit taking by NVDA investors throughout the entire current 4+ month-long rally.
Nobody on earth can predict with 100% certainty how the price of NVDA (or QQQ, etc) will fluctuate by X date, but I am betting (quite literally) that Sam’s forecast of a September pullback or correction is extremely likely to be true… for all of the reasons I’ve listed above, as well as all of the historical data that Sam has painstakingly outlined for all of us on a daily basis.
There is a very real possibility that I will have to eat my words by the time October comes around, but my suspicion is that by that time, my regret will be that I did not bet *more* of my portfolio on Sam’s Sept forecast 🙂
Are ya’ll gambling? What’s with all this gloom in the comments.
I’m starting to think that the comment section here is the best barometer for an upcoming shift in the market, haha.
No crying at the casino. ????
FOMC Decision on the 17th, I assume there would be some risk-off prior to the decision but that a confirmation of a dovish cut would continue the music?
Doubtful. Sam said we can literally top any day now so I doubt we’d last another 2 full weeks.
It doesn’t matter what Sam said. Sam doesn’t make the rules. He’s presented very thorough, well thought out analysis that outlines his thesis as well as risks. His research is compelling, but it’s not the rule.
I keep seeing comments that lead me to believe people are operating as if Sam’s analysis is absolutely certain. Kinda crazy.
The analysis is objective, it’s what the market is telling us based on past behaviour. There hasn’t been a rally like this that stretchs to 113 days (or whatever it would until the next rate cut decision), let alone beyond that to 120+ days if further rate cuts are signalled. Market has also told us it largely ignores news. Doesn’t mean that it’s 100% certain to roll that way, but operating based on the 0.1% outlier ignores the whole point of this model
Well, probabilities are in our favor that the rally will not last much longer. Certainly there are outliers and Sam cannot always be correct down to the exact date. Historically, Sam’s analysis has proven accurate within a margin of error of weeks rather than days.
No hate to Sam (especially if he’s reading this) as I have learned a ton from all his analysis and I understand this shit is incredibly nuanced but here is a list of events:
June 9: Rally Day 44: QQQ To Top Within The Next 5-7% Of Upside At Best. The market continues to consolidate as we reach the median and average number of sessions for an intermediate-term rally. A correction sits right around the corner and likely happens by the end of June or mid-July.June 30: Rally Day 58: QQQ Rally Likely In It Final Stages As Correction To Happen In Late July. The QQQ is most likely to peak near the end of July as returns should be slow developing from here on out. Chances are the QQQ peaks near $560 a share at its highs.July 2: Rally Day 60: Near-Term Topping Process Unfolding With Retest Of The Highs. Market going through a typical near-term topping process. Nvidia following suit. End of July marks 80th session of the rally and the most likely point for a top.July 8: Rally Day 63: Segmented Rally Theory Points To An Intermediate-Term Top Within 1-3-WeeksJuly 29: Rally Day 78: SPY Showing Signs Of An Imminent Intermediate-Term Top & Aug Correction As ForecastedAugust 25: Near-Term Uncertain But High Confidence Of QQQ $530 In The FallObviously things change, more information comes out, is distributed, distilled, and applied.
The administration has done a lot of things to pump liquidity into the markets (e.g. SLR) and withhold information and trade deals to pump the markets on the headlines they put out. I could be wrong on this, but seems to be their way of extending and/or supporting the markets until a rate cut can be given.
This seems to have delayed the correction from what was forecasted to be end of July to mid July to sometime in September – which is not a few weeks, it’s about 2ish months.
Again, no hate here Sam. Just here to learn.
So let’s consider what we knew at the time. And at the time, that forecast is 100% the RIGHT forecast. You can’t call it any other way without assuming that we’ll be in a far outlier case. Here’s why. And to be honest with you, everything we’ve done since June has been entirely justified AND we wouldn’t have done it any different. And if confronted with the same exact set of circumstances, we’d do the same sorts of actions i.e. Sell September 17 $540 calls for $20 on an assumed $560 exist. Sell the Nvidia calls, selling NVDL and selling NVLD calls. All of those actions were the actions to take given what we know at the time. And we would make those same plays under the exact same set of circumstances in the future.
^this is the right course of action EVERY TIME confronted with the same set of circumstances. Here’s why:
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What do we know about the average size and duration of rallies? We know that the average duration is 55-days. That the upper 5-6 LONGEST rallies of the last 15-years went beyond day 80. That’s what we know. 55-day average. 80-days is very long. So Rally Day 58 on June 30th after a 32% run, the expectation should be for new highs + 2-4% and a peak by Day 80. That should be the forecast at that point.
We know that it’s very atypical for rallies to return 30%. It’s rare. Very rare. In fact, out of the last 30 rallies+ of the last 15-years, only 7 rallies have returned 30%+. That’s less than 1 every 2-years.
Okay. Now let’s apply this to what we knew back in June.
Back on June 30, we knew that the QQQ had rallied to $530 a share. That’s a 31.84% rally.
We know that the QQQ all-time highs is $540. We knew that the market generally likes to add 3-5% above the previous highs in recovery rallies. That’s $550-$560.
So our target is $560 and July for correction. Why July? Well July represents the 60-80 day range (well above the average) AND if you look at the historical seasonal cycle, (include the past two years) July is very often a top in the market. We’ve seen a lot of July-August corrections historically.
Okay. So how do you forecast and how do you position knowing these things? Do we position on the expectation that we’re going to see a 100-day+ 45% rally that has never occured. 100-day rallies only having occurred once every 5-6 years on average?
If you forecast for a 100-day rally, you’re forecasting an extremely rare event.
instead, what you do is this. You position such that if the 100-day+ rally happens, it’s all good. But you forecast with an expectation that the “likely outcome” is July for a correction (day 60-80). And that was the LIKLEY outcome.
We didn’t sell July calls. We didn’t sell August calls. We sold September calls.
We sold those calls specifically becuase the ONLY way to get called away is if an extreme outlier event occurs (115-days+ rally). And the thinking is this. EVEN IF we get called away, the rally will have extended for SOOO long that we would probably be heading right into a correction anyway giving us an opportunity to buy back our leaps in late September or October ANYWAY.
And that is precisely where we are right now. We’re still in that same position of being able to either cover our calls or les than where we sold them or being in a position to close out our positions at a relatively high exit point ($560) with the opportunity to buy back down the line. Those actions were all consider back in May-June.
You forecast for the likely outcome, and position with an expectation that an outlier event could occur. That’s what we’ve done here.
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Here’s another way to consider this exercise. With the market up 32% at June 30th. And knowing table 4.1, knowing the data in table 4.1 and knowing the seasonal cycle of the market, how do you forecast in late June? What is the most likely outcome from a person sitting in June with the QQQ having rallied 30% and having traded $8.00 within its all-time highs?
The forecast can be nothing other than “expect the QQQ to peak somewhere between $540-$560. We’re selling the $540 September calls for $20 on the expectation that we’ll either be able to buy back our position south of $560 and/or cover the $540’s at a price lower than where we sold them.”
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But setting all of that aside. The most imporatnt thing I can say here is this. In every rally, we get to a point where the upside opportunity is no longer worth the risk. That’s at about the 30% mark for hte market. Once the QQQ rallies 30%, what we’ve seen historically is there’s 6% of upside. In fact, before this rally went to 45%, that was the upside. Every other previous rally only added 6% of upside.
Furthermore, and this is the key point. When it comes to forecasting peaks in teh market, there’s no precise science. It’s impossible to forecast for a peak with specificity. And that’s not what we do here.
Instead, we forecast for a range of outcomes and position for those potential outcomes.
Bottoms are different. Because of the asymmetry of risk — you can only go to $0.00 on the downside but infinite on the upside — bottoms are substantially easier to forecast than tops. They can often be forecasted with specificity. That’s almost NEVER the case with peaks.
Instead, with peaks, what we want to accomplish is this. This is the key here.
What we want to accomplish is the ability to sell covered calls that if they result in us getting called away, that we get called away fairly close to our entry AND/OR that we will have the ability to buy back at substantially lower prices.
That’s the goal with tops. Not forecasting the precise top. That’s never going to happen. No one is going to get that right.
instead, the goal here is this. We sold the September $540 calls on the QQQ for $19.55. We sold 8 of those calls.
That is 4 against our Dec 2026 $430 calls expiring 15 months from now. And another 4 against our June 2027 $400 calls expiring a little less than 2-years from now.
We bought the Dec 430’s at $75.00. They’re currently trading at $174. If we close those out today, we essentially make $100 in profit. We also get $19.55 from selling the Sep calls. That gives us another $20ish in profit.
So that’s $195.00 that we sold those essentially. Right now the September $540 are valued at $37. We’d have to cover those at $37 giving us an effective exit of $157 for the Dec $430’s. That’s assuming the QQQ close out at $577 at Sep expiration. Just illustrates how this would all work out.
So what’s the goal? The goal is can we buy back the Dec 2026 $430’s at $157 or below?? If we get to Sep opex and the QQQ is sitting at $577 making those worth $37 and leading to the math above, would we be able to buy back? for me, the answer is a resounding yes.
Why? becuase the next correction will likely push the QQQ down to $530 or $540 and those calls are likely going to drop to like $110-$120 a share.
If we get to Sep Opex, it means the QQQ will have rallied for 115 days. Notice we did all of this math at the time. We outlined at the time. That for the QQQ to be trading north of $540 come sep expiration means it will have had to eclipse the #1 longest rally to get there. And then the end result is correction anyway.
What would it take for this trade to be a losing proposition? Simple. The QQQ would need to trade at price so high that its couldn’t return to $560 after a correction.
In this case, that would be $630 a share. the QQQ would have to rise to $630 a share and then sustain NO MORE than a 10% correction. If something like that happens, then we end up not being able to buy back at $155 or below. The QQQ will have had to run 57% over 115+ days. And then even then, all that would mean is we wouldn’t be able to buy back our position for the same price we sold it at. It impact opportunity more than profitability.
The thing to remember with what we’re doing here is that we’re making our forecast and making trades based on what we’re doing in our portfolios. So this is all relevant to our core positions in our portfolios rather than a general unconnected forecast.
Good reminder to continue doing your own research and cross checking it with Sam’s before taking any positions. ????????
First Name is right. I’m literally just like everyone else and fallible. I’m just basing my analysis on evidence that is widely available for everyone.
Right now, our expectation his the market is about to top ANY DAY now. Like we’ve fulfilled ALL requirements for a top. But the market can still just go its own way. Like I donj’t have a crystal ball here. I’m making arguments that strongly suggest a top and correction will happen any day now. Here they are once again. I’m not holding anyting back here. So these are the issues you need to challenge to take the opposing view that the market will continue rising:
(1) This is week 22.
If you go back all the way to 2010, the longest rally lasted 24 weeks (covid). That’s it. All the others ended between week 18 and week 22. SO that’s an arguemnt strongly suggesting that the market is likely to top THIS week (based on every other scenario) or within 2-weeks based on the Covid rally;
(2) Today is DAY 100 of the rally.
Let’s look back at all rallies going back to 2010. Why 2010? Because 2010 represents the dividing line between the financial crisis 2008, the financial crisis recovery March 2009 to January 2010 and the current 15.75 year era. The modern smartphone, highly connected era.
Today is Day 100 of the rally. Here are the longest rallies:
Covid Recovery (Mar – Sep 2020) = 114-Days
Sep 2024 Recovery (Aug – Feb 2022 = 111 Days
Nov 2023 Recovery (Nov 2023 – Mar 2024) = 100-days
TODAY’s RALLY (April 7 – Aug 28) = 100-days
Oct 2019 (similar to this rally’s correction) = 95-days
March 2023 = 89-days (similar in strength to this rally) = 89-days
Dec 2018 = 87-days
May 2021 = 82-days
^notice how there isn’t WIDE variability when it comes to tops. The LONGEST rallies of the last 15-years ALL topped within 25-sessions of each other. 89-days to 114-days. Those are the longest rallies and they all toped in that 25-day period.
So the argument here is that the QQQ has now entered a zone where it is very likely to top in the coming days or weeks worst case scenario. At least we haven’t observed a rally go much furhter than 114.
And what’s more. What’s really important is that thrones that did go beyond 100-days had some weird execution going on. Covid with 10 massive pull-backs and Sep 2024 with an outright 8% correction that occurred in January. Also, we count the Sep 8% correction in that period. And that all topped out in 111-days. Two separate 8% corrections included in that period of time.
So the time cycle is an argument. It is an argument due to how consistently it works. If you look at ALL of hte rallies, not just the record ones, we have 30+ rallies over the last 15-years that all ended between 12-114 days with the average going for 52-days. Can this be shattered? Sure. There’s risk that this goes 130-140-days. It’s also why we’ve taken such small positions. Think about it. Even if it all goes south, we’re positioned such that the impact is extremely limited. Even if we get called away, it’s still limited damage.
Arryn comes out probably at $240-$250 even in the worst case. Our damage is limited by position sizing. It’s also why allocation sizing is critical. So that we’re not taking a big hit on any one case or any one correction or any one rally.
(3) Rally Return at 45% is a RECORD
Notice that setting aside the time arguemnt, these rallies all typically end by the 30% mark. The biggest rallies end by the 30% mark . Here’s something to think about. The 2022 Bear Market that took the QQQ down 40%. That bear market. The first recovery off of that bear market was 36%. It was a record rally at the time back in 2023. That was when NVDA flexed its Ai muscles. But consider this. The immediate recovery rally went for 89-days and 36.6%. That’s the bear market recovery rally which typically is the STRONGEST rally of the bull market. The 2009 recovery rally off the lows was like 50%.
36.6% on 89-days. This rally is 45% on 100-days. It has SHATTERED the previous record. Covid is what it is. But with Covid we had 10 major pull-backs where 7 of them were 5%+. There were 7 pull-backs bigger than the biggest pull-back in this rally.
IN many ways, this rally is THE record rally of the last 15-years when considering no profit taking has ensued. No real pull-backs.
Rallies tops can often be determined by the rally size. When you get to 30%, that’s when you know we’re at a top. Go look at Table 4.1. Note how many rallies end as they approach 30% or surpass 30%. That in and of itself is an indicator. Only 7-rallies surpassed 30%. The average is 22.7%. We’re at 45%. How much more upside can there really be at this point. We’re 8% above the previous highs. 3-5% is what we typically expect. We’re 8% beyond $540.
(4) Late stage overbought
As we’ve illustrated, whenever we get a big rally in the QQQ, it will often reach deeply overbought territory late in the rally. When that happens and when you start to see overbought conditions subside (negative divergence) that’s when you know we’re at a top. This has clearly occurred already. And has occurred numerous times prior rallies.
(5) Late Stage High Segment + Pull-Back + Small Segment
Another thing we often see as a “topping process” is a situation where the market will undergo a major rally. The meat of the run itself is like the 3rd or 4th segment. We get a market that moves straight up making new highs after new highs after new highs. It eventually peaks and pullbacks 4%. That peak and pull-back 4% IS THE indication that we’re at a top. That is the point where we know we’ve entered the final stages of the run. Day 89 in this case. We get to $584, peak and pull-back 4%. The market makes a retest and then pulls back 4% again. And now here we are forming a head & shoulders or three push pattern (as the SPY is concerned).
So beyond the “timing” & historical data issues, we have the market showing us actual symptoms of a top.
Go look at all previous rallies and note how many times we get a consolidation like this and then market just takes another big leg up. It doesn’t happen. We do get breakouts, but it’s not for much. You might get another surge to like $600. But then that usually does it. I’m talking historically. This exactly situation has played out where the QQQ might surge for the equivalent of another push up to $600 and then peak. But that is the rare exception.
In most cases, you see a stall out like this — Day 89 peak at $584 — followed by another 11-session of the market essentially going nowhere, that’s an indication that we’re at a top. For the SPY, while it has made new highs, they are extremely minor. WE’re talking about handful of points. Nothing substantial. We’re not seeing a rally with daily new highs and the market driving substantially higher.
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So those are the arguments. The more time that elapses, the more likely it is that we’ve already topped. The more time that elapses, the more likely the correction will be larger. The more time that elapses without the market pushing substantially higher, that market likely it is that we’ve topped.
Can the market decide to rally until Sep 17. Sure. It could sit here another 13-sessions to Day 113. Covid went to day 114.
There are compelling arguments to be made there.
I’m skeptical but he’s proven everyone wrong many times before, haha. ????
Patience! Feels like the market is going to keep oscillating within the topping zone this week, but perhaps some new direction with the X Month 25th to Y Month 5th (+/- a few days) cycle coming up
This whole comment section is going to be different at the turn. Angst creeping up. Then it will be All Hail Dieselcock!, yet again.