Hey Subscriber,

Well first, If you held our SQQQ hedge from last week (and ignored my advice from last night) good on ya! It looked like a bottom, but it was false. Apologies.

10,600 on the Nasdaq Composite is key support, and then 10,000 (law of big numbers). IF the 20-day MVA (the green line) penetrates the 50-day line (first red line), that's another "HEDGE" trigger.

Same story for the REAL Nasdaq--the QQQ's

S&P 500-- Our new downside correction target 3000 and next 2850 with a 35+ VIX

Market Comments

A) We are clearly working off the Tesla/Apple split euphoria from August--and they have to go back to their pre-split valuation to work off that insanity. 45% higher valuation because of a stock split? Insane.

B) Let's not forget that coming into the second week of September, there were 1.34 long Nasdaq call options for every share of stock! Than whole Softbank fiasco (being long $50 BILLION in 20 cloud software call options) has to get unwound, too. WTH was Mr. Sun thinking?

Remember: I learned this from my old pals the Najarian brothers long ago (Jon sold his option market-making biz to Citadel in the early 2000's.) "When the options market maker sells you a call, he shorts the stock to hedge his position. When the underlying stock goes UP in value, he has to BUY shares to hedge the hedge."

With the move in TSLA/Apple and other in late August, that means a virtuous circle of a new marginal tech stock buyer came into the market--the dudes who sold Mayohashi Son $50 billion of tech stock call options.

Those option contracts are getting unwound. And so the options market maker is HOLDING his shorts and SELLING his stock (his long position). THAT, according to our Goldman Sachs trading desk traders, is what is happening now.

Look at Softbank favorites--TSLA NVDA APPL SPLK NOW ADBE DOCU ZM etc etc.

In short, these are not fundamentals moving these QQQ stocks--its the plumbing of the world that trades those stocks. There is no panic--if there was, interest rates would be dropping.

September with a contentious POTUS/Senate election coming is shooting first, aiming second. And this consolidation looks like pay-back for the TSLA/APPL/NKLA craziness.

How do I know? IF you look at the Level II Screens on your PC (you have to pay for this usually) you see a LOT of sell stop orders sitting just below key support. The Level II screen lists all the price levels of bid and ask quotes submitted to any exchange and each individual bid/ask quote.

In a momentum market, as we have here, the momentum players using 3x-5x leverage ("momo" hedge fund trading desks) put tight sell stops on their biggest profit holdings. You see these sell stops on the QQ, on Apple and Tesla etc. etc.

Key point: The energy in the market are SPACS and IPOs... where you have not seen the massive sell stops just under the market "tape".

Oh, yea-- where are the Congress and the White House with follow-up fiscal stimulus? The market (and mois) has ALREADY priced in fiscal stimulation in Sept/early October? Where are the candy canes (unemployment insurance and stimulus checks)--there is an election Nov 3--millions of Americans are going to be evicted in October!

Without stimulus in the next two weeks,  we will recalibrate our macroeconomic outlook DOWN in a meaningful way.

The Big Problem in SPACLAND: Nikola Motors

Make no mistake: The fortunes made in NKLA was the catalyst for SPAC Mania (and we have the thank you notes and screenshots of "Before/After" portfolio values AFTER we sold out our NKLA shares June 9th at $85 to prove it.)

But friends, when the poster-child of making serious life-changing money in SPACS gets gored in an ugly public flaying, it puts a damper on investor enthusiasm short term (until the next hero takes NKLA place.)

Remember, NKLA followed the early SPAC heroes SPCE and Draft Kings--leadership always evolves.

Yet with the literal defrocking of Nikola Motors and their #1 Cheerleader Trevor Martin, it affects all SPACs. When the leading cult EV stock Tesla shows up to their biggest cheerleading event ("Battery Day") and tells the cult members "We will have a $25k EV--in 2023!!!" some cult members get disillusioned.

Then Apple's big day comes and . . . "we get a NEW WATCH!!!!".

The net result? We got an enthusiasm cold shower from the two biggest cult tech stocks in the world (who also exploded up a $trillion in value due to splitting their stocks in August).

What is really going on?

Here is a Mental Picture: Imagine you are in the infantry behind the venerated General Robert E. Lee. He and his generals--especially General Pickett--have led you to victories against higher numbers of infantry and cannon. Most importantly, you trust him and you follow him into battle with confidence.

Then, as you are charging up the hill (let's say Pickett's Charge), his horse is shot out from under him and he falls as the attack is repelled and stopped.

In this story, NKLA is the horse leading the charge and Trevor Martin is General Pickett.

Another general rides in and says "Follow me--into the breach--we are launching another attack!" That a new SPAC.

Are you feeling it? Time to ride up that hill again with mortar and bullet fire?

Yea, I didn't think so.

Here is a real-world situation with SPAQ aka Fisker Automotive. With the desecration of the leading EV SPAC aka NKLA and the correction of TSLA back to some form of reality, SPAQ is sitting naked in the crosshairs of short-sellers and profit-taking.

I can't tell you what to do with SPAQ. For our All-Access members, we will sell some expensive October $15 call options to lower our cost basis if it does not hold key support. $15 is basically the line in the sand of support in the short term.

$14.50 is KEY support--if we break and do not recover intra-day--we will take our profits and wait to see if EV support can rally and stop the bleeding or the new troops (Robinhooders) go AWOL and leave the battlefield.

Key point: The market for stocks is in trench warfare mode to stay with the battlefield metaphor. Right now every rally is being sold (turned back). The market is correcting back to a level that makes the cult stocks attractive to non-cult buyers.

What level is that? The 20-day is broken. 50-day is just about broken. Apple, the biggest cult stock in the world, is down 21% from the post-split 40% move.

Next, it's the 100-day and then 200-day line in the sand. As the "tide goes out" as Buffet says and we see how is swimming naked (40-60X times revenues or EBITDA valuations), the REAL 30-40% CAGR growing companies will come back to attractive valuations and we will be there for them.

Is that fair? As an old Goldman investment banker told me decades ago "In the stock market, "fair" is a weather report." September historically is a crappy month for stocks (mostly about rebalancing). October is going to be an election as ugly as anyone alive has ever experienced.

Our job is to identify the REAL secular growth leaders and pay as little as possible for them as possible --same in the Ultra Income world. YOU have the advantage over institutional investors who turn on their Bloomberg terminal every morning to see how much $$ they have to sell to meet redemptions or money to put to work (most long-only managers can hold very little cash by mandate).

YOU have the opportunity to hold as much cash and Ultra Income ballast as YOU want to...and wait for the 3-5 year secular growth plays to come to you. You know what your tax situation is.

PS--in our September/October newsletters will reveal our newly updated favorite 3-5 year secular growth sectors and leading stocks. Our Low-UV 222 plays LSCG and AUVI are most certainly on that list--please take advantage of the wild swings on AUVI from $8.50 to $7--anything under $7.50 is a bargain and under $7 is stealing. LSCG under .35 works too...under .30 is a steal.

The FMCI Panic Points

One of the major benefits of our Transformity Research, TR Media (our newsletter publishing crew) and TR Wealth Management organization from our 1) running managed money accounts 2) providing All-Access members direct access to my TEXT during the trading day and basically whenever is we all really get to see where the panic points are for our clients/subscribers.

When it comes to FMCI, I'd say we have a few thousand subs and managed accounts in the stock from our original recommendation around $11 to $14. Thus, when the stock rocked around and then took off in a parabolic move up to $29--not a peep.

Today--over 100 texts and emails.

So let's make this FMCI consolidation learning moment for all, shall we?

Rule #1: EVERY Parabolic move UP in ANY stock (but especially Robinhooder SPACS) is when irrational exuberance meets institutional SHORT covering, OK?

Rule #2: EVERY Parabolic move in ANY stock should be sold (with an 8% trailing stop to let the market take you out) UNLESS you don't care about the short term gain and see the big picture 3-5 years down the road.

Yes, it is easier said than done. And that parabolic move advice does NOT APPLY to genuine consumer Cult Stocks aka Tesla or Apple or Amazon.

Rule #3 The SPAC investing world has proven to be more of a trading vehicle than a long term investment vehicle. I say this because of the extreme volatility in share prices (and company valuations) because of the new investors who dominate SPAC trading. Proofpoint: FMCI trading today.

Rule #4 As a TRADING vehicle, we can report that SPACs have a definite trading pattern (that we will exploit with our upcoming SuperSPAC Trader service). I have come to call this the "SPAC 10-Point" Trading Pattern.

The FMCI chart tells our ten-point SPAC trading story very well.

Here is the 10-Point 2020 SPAC Trading Pattern

1) The Pre-reveal Tipoff: a 2x+ warrant normal volume trading day out of the blue says BUY THAT WARRANT today. Note: In SuperSPAC Trader, we will depend on the Warrant King Steven Adams for his early warrant warning alerts.

2) The Rush of the True Believers aka "Decarbonize My Planet, Bro" and "Decontaminate My Favorite Bar, Bro ": This is the actual post-reveal parabolic rush into the SPAC if the company is delivering the future that 20-40 year-olds Robinhood cellphone traders want to see happen by 2040. This is why we own the underlying stock (so we can sell call and put options against it) but heavier in the warrants hopefully BEFORE the rush (cuz warrants move 2-3X more post reveal).

3) The post-reveal analyst SPAC valuation exercise based on the merger targets SEC filing of a 5-Year EBITDA Pro-forma (aka a 25% discount to a 4-6X forecast 2025 EBITDA.) Note: This kind of forecast is NOT done in a traditional IPO. In a traditional IPO, the previous 12-month financials and a 12-month forward forecast are produced and the underwriters fight out the IPO price at 5pm the night before like Amwell and GoodRx this week.

The SPAC sponsors, however, HAVE TO DISCLOSE the 5-year Pro-Forma of the merger candidate (aka Scientific Wild Ass Guess) to meet "full disclosure" requirements in the S-1 filing.

4) The Pro Trader Swing/Short hedge fund trading desks and the true believer bag holders syndrome. This is post reveal's parabolic move up of rookie Robinhooder investors followed by a rush down of profit-taking and shorting by professional day/swing trading desks that teaches an expensive lesson to the first time Robinhooder traders

5) The SPAC bagholder’s emotional reconciliation: “This is a core holding for my portfolio”
LOL--an expensive lesson in the laws of financial markets gravity and thermodynamics ("stock go up in an escalator and come down like a broken elevator.")

6) The countdown to the merger vote and next day close: virtually all news-driven and volatile.

7) The De-SPACing Metamorphosis: into the upward flying butterfly on the ticker transition and PR/Media tour comes new "investors" who see the next big thing on their phone apps.

8) Trading the parabolic post new ticker melt-up SWOOSH with an 8% TRAILING SELL STOP (see: NKLA first two days June 8-9 2020). IF the new ticker goes parabolic, we set our trailing market sell stops (one’s that move up based on price until the price reverses 8% below its peak) at 8% and let the MARKET take us out or leave us in.

Dude--if you are in SPACS pre-reveal and post-merger and your broker does NOT OFFER trailing sell stops, GET A NEW BROKER!

9) The inevitable pullback to key 20-day TRADING support (profit taking moment #2). Most algorithm momentum trading is based on stocks going up continuing to go up when the touch their 20-day MVA.

10) The 20-day or the 50-day MVA test—again depending on news flow. What we want to see is the 20-day move down to the 50-day but not break--and the slope of the 50-day (where real fundamental buyers are the marginal buyers buy.)

Bottom line: IF you are bothered by the volatility in your portfolio, YOU DO NOT HAVE ENOUGH CASH and "ballast" from our Ultra Income investments.

For example: After taking A LOT of profits from NKLA (and trimming some profits on the SPAQ and FMCI parabolic moves) plus from selling 6 of our 100%+ winners from our March 23-early April move into blown-to-bits energy names, our average growth account has over 60% short term cash right now (and income about 25%).

We are patiently waiting for this tech correction to run course AND, as mentioned yesterday, our working assumption for the November 3rd election is basically chaos.

Remember this chart from Monday?

With that cash cushion, NOBODY is calling us in a panic--the calls we are getting from taxable money management clients is "Crap--I've gotta withdraw X$$ to pay my quarterly taxes on all these gains!"

Folks...that is a FIRST WORLD Champagne problem ok?

Take a deep breath--get your game plan and support levels put together.

GET RID of any margin you have. Now.

Build enough cash and/or SELL October calls on your big positions you want to hold into 2021.

The BEST growth stocks are coming down a lot slower than the cult stocks.

But you gotta have the cash to buy them!!

Toby

PS--Check out UVIA Sterilumen web site www.sterilumen.com

How to Survive the Correction and Rumblings in SPACLAND & FMCI

Toby