Nightly Briefing 9/16/20

Observe the similarities in the following five charts:

Each and every one of the above charts is stretched far beyond its 200-day moving average. Traders always say 'this time is different' and expect the stretch to continue, but they are always wrong. A reversion to the mean is inevitable. We believe you will see it in currencies first, then metals, then ultimately stocks. One of the best quotes to live by in the stock market is from renowned hedge fund manager Paul Tudor Jones: “Cash is a position that the average trader never holds enough of in terms of size and time." You make your money by purchasing a security at the right time first and foremost. The simple facts are at times there are no safe high probability entries. Most traders never accept this truth and repeatedly force poor setup trades with subpar results.  We are 2-4 weeks from a major low, ICL in metals and 6-8 weeks away from a major low, ICL in stocks. The dollar has just formed a major ICL, but with the current central bank manipulation in the currency markets, to attempt to trade it with leverage via an ETF is foolish. It is going to rise, but the central banks are capable of capping the advance. Metals have no one protecting them like the stock market does, so they are the most susceptible to a dollar advance. Stocks are defended 24/7 and will be into the election. We see virtually no chance of any crash event into the election. Stocks should start to fade into the end of October and head down into their ICL low late November/early December for a great buying opportunity. Gold will bottom first in the metal sector sometime in October with miners and silver shortly afterwards. We think the US dollar will show strength into the election as a safe haven and will hurt silver and miners more. Gold can weather the USD advance with safe-haven buying into what is expected to be a strongly contested election. The best time to buy stocks with leverage is at these major ICL bottoms. It will be ideal for any portfolio to have as much cash and as few losing positions as possible when this opportunity arises.

We are looking at a short term bottom tomorrow on a closing basis, with the possibility of an intra-morning low early Friday. A bounce should follow into the end of the quarter. SPX may not produce a lower low than last Friday's, but the Nasdaq can print a lower low by Friday. It has the most selling pressure by far of all the indexes. If our buy levels are hit tomorrow or most likely early Friday, we will add a short term trading position in TQQQ. NDX has had the biggest pullback and funds have the largest exposure to QQQ. We anticipate a healthy bounce. There remains a small chance for a cascade of selling into the end of Q3, September 29/30 as funds all rush to lock in profits with 4th quarter gains before anticipated election volatility. Shorting a bull trending stock market backed by the Fed’s QE bazooka is not wise. The end of October is the time for a stock market short into a sustained, multi-week ICL correction. We are still in buy-the-dip mode into late October.

Biotech and semiconductors, two of the leaders in this bull market, often bottom before the main indexes. This was the case as biotech last Friday produced a low. As we have mentioned, casino stocks, momentum stocks, and lotto story stocks may not follow the major indexes up into our October 21-25 peak after this initial bout of selling is complete (by October 2-5). Biotech is defensive by nature and with lots of positive Covid treatment and vaccine news expected in the 4th quarter, we anticipate it to excel. We want to buy on a pullback over the next 2-3 trading days. XBI, IBB, and BIB are ways to gain exposure. Never couple a leveraged ETF like BIB with options. The weekly charts are shaping up to give us a sustained move up into November.

SPCE is holding up well in the face of huge tech selling pressure in the NDX.

Bitcoin can start its next advance any day and we are very close. This should test $13,500 BTC/ GBTC $17.50. Ultimate targets are 15K BTC, $20+ GBTC.

We sold US steel today because a large portion of their revenue comes from mining iron ore. Iron is currently at record price levels like many other commodities (courtesy of a weak dollar). As we have been forecasting, this is going to change shortly with dollar strength overdue into the election. If President Trump tweets infrastructure tonight the steel sector will ignite, but that prayer is not enough to keep us long the stock or sector. Next week may be bloody for many commodities - including oil - which is why is was jettisoned today as the gulf hurricane helped boost price. However, the week of September 28th is currently indicated as a large advance for crude from the low it sets on likely Friday Sept. 25. New highs may be set in the first few days of October. We may enter ETF UCO for a crude position then. Oil does not currently have enough volatility to produce gains in USO unless coupled with options.


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Important Disclosures: Investing in the financial markets can involve considerable risk, including loss of principal. Past performance is not necessarily an indication of future performance.  Actual clients may achieve results materially different from the results portrayed.  All material is for informational and educational purposes only and is not investment advice and is not meant to suggest that any securities are suitable investments for any particular investor.  All information reflects our own actions, beliefs, and processes for purely informational purposes. HEDGE FUND Z LLC IS A FINANCIAL BLOG FOR THE SOLE PURPOSE OF EDUCATION.  HFZ does not represent themselves as acting in the position of an investment advisor or investment manager for funds that are not under their direct control and fiduciary responsibility. 


Third party quotes and information may not be representative of the experience of HFZ customers and do not represent a guarantee of future performance or success. Many of the results displayed on our website were achieved using leverage, such as 2x or 3x leveraged ETF's or equity options 


The information included at HFZ and HFZ writing, research, and updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system.  Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. HFZ does not represent themselves as acting in the position of an investment adviser or investment manager for funds that are not under their direct control and fiduciary responsibility. HFZ will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter.  


No information, nor any opinion expressed on the Site or in the Services, shall constitute a solicitation or an offer to buy or sell any securities mentioned therein.  The information presented on the Site and in the Services has been prepared without regard to any particular investor's investment objectives, financial situation, needs, capacity, and trading ability or experience. Accordingly, you should not act on any information on the Site or in the Services without obtaining specific advice from your financial advisors and should not rely on information herein as the basis for your trading and/or investment decisions.  HFZ cannot claim or represent that any of our Services are suitable for you. 


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