Wall Street Next Week: Financial astrology for the successful investor & trade

1. Is inflation coming? No, it is here!

Upside limited & risk is growing. While markets CAN go higher, the Risk/Reward is unfavorable.

Fall IS Coming or has it come and gone?

Yellow alert: Next week on Astro as well as growth, valuation & risk metrics

For the coming week, we continue to maintain defensive protection:

High cash levels cash, low or no margin, writing calls, hedging, very short-term trading, some October puts and buying only special situations into early Fall.  The risk/reward still favor more than September’s 5% burp.

SOME WAYS TO BET ON INFLATION, especially when over 5% and not temporary.

• Gold & Hard Assets
• “Low End” stocks such as Dollar General & Luxury Items e.g. blue chip art
• Private Equity
• Tips but better to Shorting Bonds

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We do not buy today’s pyramid games will continue forever. Some possible landmine triggers beyond Delta/Lambda/Mu Covid fears include:

• Inflation > 5%
• Higher Taxation
• More Market Stumbles like AMZN
• Bitcoin collapses (28K support broken which it will sooner or later) would do it. Cf: bitcoin-why-you-should-be-terrified-of-owning-btc
• TNX >1.50-1.75.
• A change in perspective- comparing not to last month or last year, but a longer-term horizon leaves little upside to analyst projections.
• Fall FED tapering
• The usual assorted geopolitical threats especially from Chine including US/China aggressive escalation Q4 2021.

I am unwilling to buy at today’s prices, especially SPX > 4000: given the downside risks.

Outside of day trading and special situations, we plan to sell/short and wait to buy if/when markets are 5%-20% lower. 

PIVOTS         2020 Close  10%-            Nov 3                                                                                                                              

DJI 35000      30606          31963           27480          

SPX 4400       3756             4075             3369            

NAS 15000    12888          13842           11160

BE PREPARED

Inflation is currently solidly above 5% and I don’t believe it is just “temporary”; furthermore, we are likely to see STAGFLATION!

Given  high valuations, there are not sufficient FUNDEMENTALS (Fed accommodation, Vaccines & Stimulus Packages) to justify SP500 earnings.

Our recommendation continues to be maximum portfolio protection.  

TSLA, BTC, VIX, GME & TNX are our five market “canaries in the coal mine”:

When three or more canaries sing, be ready to Head for the Hills (&/or your nearest bar) 

TNX:              > 1.50-1.75

TSLA:            < 695-666

VIX:               >22-26

BTC:              < 42-30K

GME:*           <100-50

*Gamestop & stocks such as AMC [>20] or COIN [>225] are like Bitcoin, their trading has little or no relationship to reality. 

Public valuations of large, mid and small cap companies remain near their highest levels in recent history.

Short of a reality check that the emperor has NO clothes, newbies learning that all stocks do NOT go UP ALL the time can also time market tops).

TRADERS DO QUICK DAY TRADES OR HAVE VERY DEEP POCKETSMARKER SHORTS: DJIA 35051, 35208 & 35150 SPX 4411, 4436 & 4468 NASDAQ 14836 & 14835

• After hard rallies or market drops, it is smart to book some profits.
• Odds of a market drop before the end of into October remains HIGH – We stay prepared!
• We are ready to add more TNX (10-year US Bond) shorts over time but protect when markets drops hard.

TRADING                                                                      

Gold             Buy on dips Rinse and repeat & repeat Last buys 1763, 1750,

Silver            Accumulate on dips < 24 Buys 25.15, 24.33

Copper         4.25 Pivot  Accumulate 3.80-4

Oil                Sell 80-82

TNX             1.50-1.85 Targets Short 1.25

KEY DATES:        October 12, 21/22

DJIA:                    34000 SUPPORT?

SPX:                     4400 PIVOT

NASDAQ:             14800 S1 14500 R1 15000

GOLD:                  1750 S1 1740 R1 1780 R2 1800

SILVER:                22.50 PIVOT R1 24 S1 22 

OIL:                       76 PIVOT R1 80 R2 82

COPPER:              4.25 PIVOT

US 10 Year:           R1 1.75  R2 1.85 R3 2

DXY:                      94 PIVOT

VIX:                       22 PIVOT R1 26 R2 30

BTC:                      54K PIVOT S1 50 R1 56k

2020 CLOSE:          DJIA 30606 SPX 3756 & NASDAQ 12888

2019 CLOSE:          DJIA 28508 SPX 3231 & NASDAQ 8823  

2018 CLOSE:          DJIA 23327 SPX 2506 & NASDAQ 6635

AFUND Fair Value  GOLD $1845

Reduce Risk and Focus on Capital Preservation:

THINK TRADITIONAL SWISS AND PRESERVE CAPITAL: HEDGE AND PROTECT AGAINST DOWNSIDE RISK.

2. Outside of special situations we do not plan to add positions until aftermarket correction. 

Favorite H2 2021 Sectors:                                                                          

Entertainment, Mining, Technology [AFTER a 20% correction & Distressed Investing (select Real Estate)

Currently we becoming bearish on Covid Health Care plays (except select lower cost/better health outcomes).

3. Gold price to 'revisit its peak' soon, says Bloomberg Intelligence

HW: A reasonable intermediate term target especially when it is noted that  inflation is a positive not a negative for gold investors! 

Note: One can only imagine when Bitcoin meet reality, how it would likely to usher in a rapid source of many new gold investors.

Gold Fair Value is $1845 with $1750 support and $1850 & $1925 overhead resistance.

Silver Fair Value $26 with support tests continuing to be an opportunity for long term accumulation: $22 Support & $30 overhead resistance.

There are many good buys in the precious metal space depending on your time frame & risk/reward desires.

Gold: Fundamentally the global political and economic situation is very favorable for gold but mixed for Silver (as also an economic metal).

Precious metals remain favorite sections. More generalist investors now have some interest in Metals and Mining.

Note it is under allocated by most investment programs, this gives it even more potential room to run, especially as inflation fears resurface &/or if US dollar weakens!

Hence, we recommend a full and over weighted precious metals portfolio allocation.

However, we advise long term precious metal investors to also pay attention to stock selection.

• Gold remains cheap geopolitical crisis insurance.
• For investors who cannot or will not buy the $US currency as well as investors who wish to safely and cheaply hedge their US$ exposure, ONLY GOLD IS AS GOOD AS GOLD!
• Once again, some investors are hedging record equity prices by buying gold.
• Low real interest rates is positive for gold as well as low global bond yields makes gold an attractive alternative risk mitigation hedge.
• We expect precious metal stocks to outperform physical gold & silver in 2021.

Gold FV $1845 = Commodity FV: 1680 + Currency FV: 1810 + Inflation Metal FV: 1850 + Crisis FV: 2040

INVESTORS: We will stay LONG in H2 2021 both as an investment and as a portfolio hedge.

4. Seasoned speculator picks: On Hold

Many picks are best for speculative portfolio allocation and as such bought as a member of a group of 5 to 10 such stocks.

Remember NOT to ignore potential High Risk - meaning use speculative allocation i.e., “money you can afford to lose without altering your lifestyle.”

Always do due diligence before deciding to act.  

5. “Earnings season is really going to be the next catalyst for the market to understand where to go through the end of the year.”

Cliff Hodge, chief investment officer, Cornerstone Wealth

HW: That should always be a major catalyst for markets.