Summary

Richard began by outlining HED Capital Management’s system philosophy as grounded within the mood of the crowd. Enthusiasm and panic have a formative effect on price that is often contrary to what conventional economic logic dictates, for example rising prices tending to bring in more demand as shorts are covered and people attracted by the movement and so rising prices producing self-sustaining trends, only self-sustaining because of the interaction between the crowd and its mood and the price. HED sought to find ways to measure the ebb and flow of the mood in the markets. Difficult of course because mood is by its nature intangible; it's very different from opinion. They use proxies for mood such as price trends, on its own not very useful, but more useful when combined with a measure of trend persistence called a Hurst Exponent. If the movement of the market price is the distillation of everybody's feeling at that moment, you must look at the participants of every timeframe, and the most important people in the market at any given moment are the short-term traders because they are far more active. HED have distilled all their efforts into various measurement techniques. They then look for patterns in those measurement techniques. The signals are generated relatively infrequently and as a result they look at a very large number of markets.

In the NASDAQ composite index, for example, HED have seen in recent weeks, three different signals. The end of the first run-up was met with an extension signal, extensions being the end of trends. They do not necessarily mean the beginning of the next one. On September 1^st they noted another extension signal as of the close indicating an excessive amount of agreement amongst participants. The other signal they use, are compressions, where there's massive disagreement and as many bulls as bears. This is when new moves begin, this most recent little move up in the NASDAQ started with a compression signal.

In Gold, looking at the nearest month futures, the drop into the second week of August produced a bottom extension, their single most powerful signal because fear is such a powerful motivator, and it tends to produce a crisp signal. When HED note one of these, they almost always recommend buying immediately. The same chart also reveals a top extension back in May, which was the end of that run-up. But they also look across at all sorts of other gold related instruments, such as gold mining indexes where there was a signal that once again, a compression. Once a compression breaks, HED recommend going with the break as it indicates a new trend starting. That got them into a long gold position, enabling them to exit very near the highs on that top extension signal.

In US Treasury Bonds, at the beginning of 2020 HED received a signal, the only extension signal on a chart displaying yields going back to the 1980s. The only extension signal in almost 40 years in bonds indicating the trend was over. What we're seeing here is a turnaround from falling yields, probably into a sideways yield period, which will be followed by a rising yield period. The worries expressed in the media and amongst politicians about imminent inflation; they are real worries. This is not something that we should take lightly. We should not accept some central bankers’ statisticians’ explanations that inflation will rise, but then fall off again. There is nothing in our work, which indicates that there is anything other than extreme danger here. So, in bond markets be very careful about being bullish bonds, for anything other than a very short-term move.

HED work in multi-dimensional analysis, for example Richard showed crude oil as seen in three dimensions and animated into four dimensions. A strip of crude oil daily prices so that you can see a rippling banner that moves through time. In that we can see things developing, which are not visible with merely two-dimensional charts or static charts. Options also are notoriously difficult to analyse and so HED animate option volatility surfaces so that you can see things that you cannot see with a static unmoving surface. For example: rhythm. There is obvious cyclicality in option prices and as an option strategist this is invaluable to know how to time your trades. HED’s single greatest strength is in equity markets, particularly US equity markets, where there is so much to analyse. There are so many different series, sector indices, ETFs. The more information available, the more likely we are to have a signal or a group of signals.

Current recommendations include long gold, long the dollar, short bonds, get ready to short US stocks, but currently just trade from the short side, not holding a short position. So, sell short take some back and be prepared to take a strategic short position. HED have seen top extension signals indicating an uptrend is over at long timeframes, at weekly and monthly timeframes. There’s no compression signal, which will signal the start of a new trend, but HED seek to give tactical advice such as: trade from the long side, trade from the short side, take profits now, protect profits now. A constant commentary, designed to be friendly to trade.

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