Nightly Briefing 9/17/20

NDX will have the largest swings over the next 2 weeks. A short term low occurred today or early tomorrow at latest. We expect a reversal Friday into early next week for a bounce, then a second low into the first few days of October. The early October low may be a higher low or an undercut low, too early to tell. SPX and the DOW are more likely to produce lower lows into early October. Big money has been selling their most concentrated positions to lock in end-of-quarter profits prior to the election. Once the selling subsides, NDX may not see the same sell-off severity as the past 2 weeks. It will most likely have a more bullish profile after this week than DOW and SPX.

We examine the market through SPX which produces the purest data. SPX also has proven to give the highest hit ratio with our own data fed into our system. In order to generate a worthwhile long trade for a bounce into the end of the quarter, we wanted to see SPX 3220. This simply did not occur, yet. It is a key support level that is capable of ushering in a profitable bounce. We cannot go long even at SPX 3300 early tomorrow AM, which we think will occur and reverse green, possibly into next week (September 22). We will not alert it, but will give a strategy if you are willing to take the risk of getting caught in the October 1-3 bottom, possibly SPX 3000-3100. One could go long tomorrow at the close or mid-morning if markets are green by noon, and look to trade out near SPX 3400 early next week - no later than September 22nd. This trade is not recommended. The end of quarter rally may just be a blip based on the Fed’s agenda and appetite. The trend we are currently seeing is liquidation into end of quarter - not buying, but locking in pre-election profits by funds to secure their hefty year-end bonuses. The mega tech names are also being dumped, dragging NDX down the most. We are monitoring a 40-year cycle from 1980 which produced a low on October 1-2, as well as the 2-year cycle low from 2018 which also bottomed October 1-2. This date should produce a powerful rally for us to use leverage short term in major indexes NDX, SPX, and DOW into our estimated October 22-25 top. That will be followed by a short in SQQQ into late November.

We sold US steel yesterday for an 8% gain with expectation of stock market weakness and dollar strength into early October. Our posture will always remain defensive first and foremost. Yes - we will miss out on some profits, but practicing good risk management is key to consistent long term results and there is always another trade. As we have said in the past, the steel sector can rally in a declining market as we saw today, with fund managers looking for places to deploy capital on a pullback in sectors that have not had rotational money flow. Mid-morning today, the steel sector was plummeting, but TSLA came out with a report of the need for more iron in their vehicles. At the same time, several pundits on CNBC profiled the lackluster material sector, highlighting steel stocks and iron ore companies like Vale. We finally got the close over $8 on X, but rather than repurchase it for a short term trade we feel CLF will have more upside short term. There remains risk for long term share dilution once price goes over $10. CLF has a habit of rallying into earnings which are next scheduled for mid-October. CLF also has the largest short position of any iron ore mining company or steel stock. The latest attention to the sector will cause some short covering and price could jump quickly. Our first target is $8. It should be noted this is a short term play, and the best long term steel names are NUE, STLD, and SLX.

Materials have risen steadily for months showing early warning signs or price inflation. It was just a matter for time before the steel sector was the beneficiary of cyclical rotation. 

The SEC investigation into Rochester, NY based Eastman Kodak began just after the Trump administration granted the company a huge loan - close to a billion dollars virtually interest free to manufacture key ingredients for generic drugs. The company had a roller coaster ride up from $3-$60 in a matter for days as market makers shorted shares out to Robinhood day-traders and pressed price back down on the negative investigation news. They were cleared yesterday by the SEC and the stock spiked to $11, with short sellers attempting to cap the rally by beating price back down to $9. We believe more than half of the float is short. Legally borrowed shorts appear as 16 million on a 57 million share float. Add in another 10 million from naked shorts - shares sold short without receiving legal borrows from clearing agents. We saw today what we were waiting for: heavy volume (70 million shares) and price escalation. There should be a huge scramble to cover by short-selling hedge funds into tomorrow. A major hedge fund recently purchased approximately 5% of the company in the open market with a cost probably above what we paid today. We expect news to flow from Kodak any day giving more firepower to momentum traders. This is a great long term trade, but we plan to take profits on a spike and sell the principal investment while letting free shares ride. It is a personal choice. Our first Fibonacci level of $23+ should be easy over the next 30 days for Kodak. Since added to our short term portfolio, KODK is already up more than 20%.

Technicals looking great for BTC and GBTC.

The biggest trade of the year is coming up for HFZ members. We have an AI target for gold of $2250-$2300 by early December. Gold will be pushed by a major 4 year cycle top in said time period. Silver and miners should follow, but as we have seen, the metals rotate in advancing strength. It is likely gold's time to lead again after silver just finished its blow-off top into early August. Gold will receive safe haven panic buying due to geopolitical and election risk. Make sure you are approved for options trading, minimum level 2, if you wish to purchase call options. We will be giving out an alert in stages, layering in and spreading our buys through different strike prices in the ETF GLD. Our first purchase may come as soon as the next 10 days. A final low may occur right before the election. We will take positions over the next 30 trading days. This trade should produce a minimum of 100% profit with an exit window of December 3-10. Options are potentially an all or nothing bet, so risk only what you can afford to lose. We will offer a leveraged gold ETF trade at the same time for those who do not want to trade options. The next big advance we have for silver is February. We will repeat the same strategy then. HFZ

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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. 


By your use of the Site and Services, you're agreeing that you bear responsibility for your own investment research, trades, and investment decisions. Only you can decide whether or not a trade is right for you and you agree to be liable for any trades you initiate at your brokerage using research and/or tools that we provide. If you ignore our advice to do independent research and choose instead to trade solely on information, analysis, alerts or opinions found in our Service or website, you have made a conscious, willing, free, and personal decision to do so. You also agree that HFZ, its directors, its employees, subsidiaries, affiliates, and its agents will not be liable for any investment decision, trade made or action taken by you and others based on news, information, opinion, or any other material published through our Site and Services.  

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