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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