Samwise Quick Reference Handbook
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So what’s the plan for Baratheon / Targaryen with the increased risk of a near-term peak?
So the QQQ positions don’t have enough value in them to warrant closing those out. Not on risk alone. It’s not different than when we were trading at $427-$430 and they were worth $0.05. They’re now worth $0.10. as those positions are concerned, we’re relying on a parabolic move up on earnings coming in strong. That’s the reality for those positions.
For Tesla and Nvidia, nothing just yet. We may trade out of them if the risk of a peak drastically increases with the aim of buying them back.
What is the likelihood of any trades being made today?
If the QQQ moves up toward $478-$480 in the last hour of trading, then there’s a good chance we will add to our hedges in Arryn. We might sell Nvidia positions in Baratheon and Targaryen.
Hi Sam,
Could you remind me / point me to the investing basics material that outline what the “rally targets” that are being fulfilled are?
Thanks!
Slightly tangential question: Do you have a timeline for finishing out the Investing Basics material? 🙂
Exactly, have been waiting to read more fundamental forever lol 🙂
I’ll get back into that really soon. But so focused on the current market environment that I haven’t been so mentally into it. It’s really easy to shift focus on that type of material when things are slow and stable in the market. It’s more mental shift than anything.
But really, we touch on all of the topics here and you saw a lot of it in action during this correction.
There’s an article I’m going to write soon that will touch on a variety of issues in Understanding the Market. The article is going to be entitled something like “Why this TIME is NEVER Different.” It addresses some of the repetitive questions I often see in every major correction.
Anyway, I got to write that one and it’s going to take some careful outining. Going to keep it in the permanent articles tab. After that, I’ll get back to the investing basics content.
There’s no specific target that generally applies to all markets. But look at the analysis that follows.
Here’s why. Suppose the QQQ fell 12% over 20 trading days, and reached mildly oversold conditions on the daily. So that’s a 30-RSI + down 12% over 20 days. We get some capitulation indicators flaring up.
The expectation there is for a 10-15% rebound inline with the median. Both the 30-RSI tables and the post-correction tables bear that out.
But if the correction as larger or more protracted with the QQQ down 18% over 30 sessions and where the daily RSIreached 20, the $ViX spiked and the $NYMO hit -100, we might expect something closer to 15-20% rebound. It’s a range.
Our target is based on looking at the correction table and looking at the median/averages for a variety of indicators: number of sessions it took for hte correction to bottom, number of session for the rebound, the total correction size, the total rebound size etc.
We’re looking at the totality of the circumstances and saying, “corrections of x-magnitude generally lead to rebounds of y-magnitude over a course of z-number of days.” <— this is what we’re trying to get at.
When will the correction bottom? That is generally answered by looking at the number of days it has taken for past corrections to bottom coupled with the percentage loss relative to previous corrections. You take that and then consider the general fundamentals of the era, the negative sentiment and compare that to previous environments. We toss out a number. We then also wait for capitulation to occur. We know they happen on Mondays and Fridays. The bigger corrections almost uniformly end on Mondays. Now we just wait for those huge numbers to come in -100 $NYMO, 60 Vix, 20-RSI etc.
Once the bottom is clearly in, we then want to gauge the size and time-line of the rebound. We look at retracement levels. Support/Resistance levels. The size of the preceding correction. The size and scope of the rally is directly related to the size and scope of the sell-off.
Because this sell-off was 25.5% making it the 4th largest ever, we draw comparison to other similar sized sell-offs to draw our conclusions. IN this case, the expectation was for a rebound somewhere in teh neighborhood of 15-25% with the rally more ending at the high end of that range. For all the reasons outlined the briefing.
Since the QQQ has already rallied 18% off of its lows, it has met that target. Having doing so over 3-weeks (15-sessions) increases the chances that it’s a legit full blown rally.
Hi Sam,
When comparing historical correction data over the years have you found certain metrics (e.g. duration vs. %) to be more important when performing these type of “expectation” analyses? Like, how much significance do we put on the fact that the current post correction rally is still materially smaller (18% vs. 24/28%) than the others vs. the rally duration component?
Thanks!
So it’s not one metric. It’s a totality of the circumstances. There is no one dominate thing. When corrections occur what do people really want to know?
They want to know: (1) when will correction end and (2) how low will the market go before it does bottom.
Those two questions are answered by looking at the historical correction data and comparing that to the historical overbought/oversold data.
For example, let’s suppose it’s 2029 and a market rally is peaking and we’re heading into a correction. what should people expect for the correction and why?
Well first, we know that the longest duration correction was 59 sessions long occurring in October 2018.
To expect the correction to last substantially longer than that would be unreasonable. To say, “we should expect a correction of 189 sessions the LONGEST correction historically going back 19-years was 59 days” is kinda of nonsensical yeah?
Furthermore, to key in on a “likely” outcome, we can look at the median and average. They sit at around 15-20 sessions. Most corrections end at 20-session or less. And in only 6 out of 46 corrections did we see the correction last more than 28 trading days.
Remember all of the “this time is different” questions. In the end the Feb 2025 correction lasted 34 days making it the fourth longest on record. Totally within normal range. Only a few days beyond the top 3rd classification of 28+ days. We’re talking a week. 1 week beyond the top 3rd dividing line.
This can’t be an abnormal situation if the correction lasted a week longer than the top 3rd of all corrections.
How about size? 5-30% is the reasonable range. After a 5-30% drop, one should expect a rebound of 6-40%. The size of the correction generally corresponds to the size of the correction.
Note that this correction was 25.5% overall. well win the normal 5-30% range. At 25.5% down, it ranks at #4 overall. July 20, 2015 was larger. Can anyone even remember what caused the July 20, 2015 correction. I can’t even remember why the market was selling off back then. I remember, being in that correction and I remember the insane capitulation/crash. I can’t even remember why though. At all.
But more to the point, the average correction is 10-12%. That’s where MOST correction fall. 10-12% down on 15-20 sessions. That’s the typical correction.
A 25% drop, while significant, is still within the normal range of the historical trend. Hell even if the QQQ ended up falling 34% — putting this correction at way beyond the covid crash by 4% — and if the QQQ ended up bottoming out an rebounding 27% or something along those lines, well then it’s still normal. A record setting sell-off — like in covid — doesn’t somehow turn it into a “this time is different” situation.
But we’ll take about that later. The point here is we use the table to give us a range and there is no one single thing that we can post to and say “this is exactly the reason” or weight it more heavily.
—-
The same goes for forecasting a rebound. The same analysis.
(1) Has the market reached key oversold indicators? Has the market capitulated as indicated on the $NYMO, $VIX, daily RSI and overall volume?
(2) Exactly how far down is the market relative to historical trend.
(3) How many days have elapsed?
(4) how does the correction size & duration compare to past similar environments?
(5) what does the post-correction data tell us about how far this rally is going?
Sam, are you watching? anything on trade watch? $475.77 right near intraday high
Not quite yet
SMCI missed
might be a good time to think hedges…
Has the plan for NVDA changed after today’s gains?
Not at the moment. We may trade in and out of our Nvidia July spread depending on how things play out over the next few days.
sputtered looking very weak last hour
Sam, From what you are saying, it sounds like there is far more risk than reward for the market in May. Would you agree?
With regard to Tesla, they should have some nice growth ahead, so it deserves to sell at a high multiple, maybe even 125x this year’s earnings. But if you look at the consensus of the Tesla 5 star analysts (these are the 6 analysts out of 35 who have been extremely accurate with their earnings calls on TSLA), they are forecasting EPS of $1.61 for this year and $2.41 for next year. So that means the stock is currently selling at 177x this year’s earnings and 118x next year’s earnings. That is insane! The stock has gotten way ahead of itself. If we get a relatively strong pullback in the Nasdaq in May, I think TSLA has downside to $200. The stock is $285 right now. At $200, it would still be selling at 124x this year’s earnings.
I think the ingredients for the larger pull back have arrived today AH
Maybe. I think it’s hunker down time for this guy. I need to see some positive developments in the technicals before leaning back into the bull camp.
Yeah.. Hedges shoulda been done yesterday
We need to hear from Sam this morning this has all the ear markings of the start of the big leg down
Major risk of big bear leg. Any reversal from here is actually more bearish.
How so?
https://alchemymarkets.com/education/candlesticks/bearish-engulfing-pattern/
This is all normal pull back. Also not a bearish engulfing candlestick at all.
A bearish engulfing candlestick occurs when the open and close are above and below the open and close of the previous day.
So we would’ve had to open GREEN, sold off and closed out the day below yesterday‘s opening price
Hence, the word engulfing. A gap down is something else entirely.
Also for a bearish engulfing candlestick to be valid we would need the market to have a big up day — like +8 points — and then today would need engulf the entire range. Open higher, reverse course and then close below yesterday’s open. It needs to be a big reversal. Otherwise meaningless.