Nightly Briefing 9/29/20

We exited CLF today giving it a couple of days to run after Sunday's announcement that they were in talks to buy Arcelor Mittal’s US steel operations. The multi-billion-dollar deal is expected to go through shortly and CLF will most likely issue senior notes (possibly convertible debt) alongside a large block of common stock to pay for said transaction. This is a great long term move for CLF, but short term an acquiring company taking on a greater debt load can see a sharp move lower. Following the same logic, Moody’s announced today that they are considering downgrading CLF's debt rating, not good. The inflationary steel sector trade has not commenced, but should ignite in the next 3 months. We look at risk mitigation first rather than profit potential and removed CLF from our short term portfolio. When you trade individual names, you are always subject to company-specific risk which is why we prefer ETF's when the setups are there.

The market may not reach 3400 SPX. We will know tomorrow after the first presidential debate. Both sides may claim victory after tonight, giving the market a large move up into the last day of the quarter. Regardless, we have a danger zone from as early as tomorrow into the following Wednesday. Markets may levitate and prove us wrong, but our system has been timely in calling pullbacks all year. We favor a 85% probability of a sharp, multi-day pullback. This dip should be bought up quickly and usher in a rally into late October. 3200 SPX may hold with a spike down to 3120. This is not a short to use leverage on. Markets are headed higher and you cannot fight the Fed. They may abort the pullback with liquidity injections and stocks may suffer just a shallow correction. We will most likely use an ETF which has less leverage, but can be traded after hours. The NDX has been strong since its initial bloodbath back in September, so we may be entering a short through SPXS. We may not get in at the bottom or out at the top, but a decent short term profit might be possible.

Biotech should get pulled down with stocks into next week. We would wait before entering IBB, BIB, and XBI.

We are seeing some rotation from technology stocks into the Russell/small-caps. We would expect this to continue in October but NDX/tech ETF's will most likely still outproduce the Russell Index/small-caps. Regarding leveraged ETF's, TQQQ will most likely outperform TNA. Often the major indexes leave the small-caps behind.

Gold has upside potential for $1910-$1920 before rolling over. Once the RSI tags the overbought line shown above, that should set up the metals complex for another pullback. We are looking at the final bloodbath phase later in the month so cannot grow impatient and buy early.

The dollar is the inverse picture of gold. We await its oversold RSI reading. It has put in an ICL bottom and started a new advancing phase. The stock market can buck the trend and fight a strong dollar with the help of the Fed, but not metals.

Natural gas as we have stated before is traded in a very thin market dominated by a handful of large global energy companies making it subject to large, volatile moves. We got one today as the quarter is coming to a close. The moves go in both directions so expect some large upward swings soon. We would not be trading short term options in the natural gas market. There is enough leverage in UNG for good profit potential. This gap fill shown on the chart should complete this pullback. Energy prices globally will be supported by governments and production cuts should occur as needed to buoy price.

DENN will reward us in due time, but undoubtedly has been a tedious trade. It serves a prime example of controlling one's emotions in the market - not selling out of frustration or buying out of FOMO - but patiently waiting for the reward we know is on the horizon over the coming months.

Virgin Galactic closed its second day over $20, a very strong sign. There is a strong probability of a new trading range being established. It is a story stock and is capable of bucking the market's trend if a few large down days occur over the next week. 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. 


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