Following are my personal comments on specific markets and issues. I chart markets for a hobby and my comments are the result. They are not recommendations to buy or sell anything and should not be thought of as such. They are for entertainment purposes only so enjoy.

David Bruce Edwards - Northern Front LLC December 2nd, 2017

dedwards-1@comcast.net

Please remember, the following is pure speculation based only on my experience and chart patterns. "Every sunken ship has a room full of charts."

Note - I got a new wider screen monitor and when I look at this web site with the screen size in full, the site spacing does not come out properly. By making the window less wide all of the text and graphics slide into place. Perhaps you are having the same experience. DBE.

 

Corn update

 

 

Last time the Chart of the Week was a graph of corn futures. The sideways coiling pattern resulted in a burst to new lows for the cycle. The chart text book says that this formation should lead to a reversal and we got one. I loaded up on CORN, the Teucrium Corn Fund ETW so I am biased in favor of higher prices. This security is highly speculative because it lives or dies based on the price of a single commodity. Corn and other grains are not popular and prices are low. I figure that I am buying an out of favor item in hope of better prices for grains in 2018. No one knows what the weather will be next summer. Right now, corn is priced for another good crop.

 

 

 

 

 

 

 

 

 

 

gold tri

 

 

 

 

Corn did well but the disappointment of the week was gold. I was hoping for a pop up above the "a" point on this short term chart. We got a bounce but it ran out of steam. Some of the smartest analysts I read are suggesting that it is making a contacting pattern similar to the one that Corn made which will be followed by a brief but painful sell off. If so, did it finish its "e" leg on Friday with the Flynn news or will it do so early next week?

 

 

 

 

 

 

 

 

 

 

 

 

 

au dec lows

 

 

 

Chart watchers notice that the last two major lows took place in mid-December. There is no axiom that says it has to happen this way again but betting players will be on the watch for lighting to strike at the same time period for the third year. The last two December lows were preceded by significant price declines. So far, gold's moves in either direction are small in comparison. Analysts will also watch to see if whatever low we make over the next month stays above the low of last year. One theory is that if the seasonal cycle low holds above the previous year's low it is a good sign for higher prices.

 

 

 

 

 

 

 

 

 

 

 

 

rk update

 

The blue line is an index of gold and silver mining companies. The red oscillator keeps track of the number of times this industry group scores among the top 20 industry groups over the last ten weeks. For the third week in a row it is at zero! I looked at the other three times it was at zero. In June of 2000 it was there for four weeks. In January of 2005 it held for two weeks. In November and early December of 2012 it was again at zero for four weeks. Following those time periods it began to have some weeks among the top 20. Next week will be the fourth week, tying the 2 longest streaks over this seventeen year period. Mining stocks are out of favor and under owned at this point. If gold shows any life that lasts for more than two days they could have a good snap back.

 

 

 

 

 

 

 

 

 

 

 

g flat

 

The chart of gold in constant Dollars may be nearing an inflection point. The notations drawn in on this chart imply a pattern that is similar to the corn chart and the gold chart right below it but the direction is reversed so that the break out will be to the upside. Bears on the metal will say that I have it backwards and that the "a" should be at the first peak above 1680. If they are right then point "d" on this chart is really "e" and the metal is about to fall to new lows.

Based on the length of the first advance I am more likely to think that the metal will pop higher. Remember, these patterns lead to a quick burst then a reversal just as Corn surged lower then jumped in the other direction.

 

 

 

 

 

 

 

 

 

 

 

 

r gray

 

No, I never touch the stuff. When I was a commodities broker in the 80s I saw a lot of doctors, dentists and accountants lose money trading silver. That is a long time ago but new generations come along thinking they can score the big move with this metal. It lets them down every time. Last week we sold off to just below the previous spike down and close to a few other notable plunges. A break of these lows will have everyone dumping and might be the best opportunity to buy this year. Long term traders will be watching the $15,70 level if there is a sharp decline. A move that stops around that price range will be seen as the right shoulder of an inverted "head and shoulders" formation. In 1988 I went to my first mining convention in Spokane WA. I met the chairman of Coeur D'Alene Mining who told me that silver prices were being suppressed by big banks and the government. I am reading the same theory today.

 

 

 

 

 

 

 

 

 

 

p both

 

 

Palladium is trading at around $1,000 while platinum stalls in the mid $900s. You could see the sideways move in platinum following the 2016 lows below $900 as similar to the corn chart with possibly one more little pop above $950 forming the "e" point in the pattern. That would be followed by a quick wash out and reversal. These metals are impossible to predict but if I see it I will mention it in future updates.

There are catalytic applications that switched from platinum to palladium in previous years because platinum was hundreds of dollars more expensive per ounce than palladium. If the market thinks that higher palladium prices are here to stay there will be some platinum substitution for palladium, increasing demand for the cheaper metal. I am buying the stuff bit by bit.

 

 

 

 

 

 

 

 

 

 

30s and 10s

 

 

Here is an update on the market interest rate on 30 year T Bonds, 10 year T Notes and the spread between the two rates. The interest rates on shorter paper have been rising in line with stronger economic activity. Rates on longer term paper have not gone up as much. You could interpret it as a sign that the world does not believe in the sustainability of our economy. Another way to see it is that in a world of government paper with a near zero yield, U.S. long term debt is extremely attractive and well bid at current rates. When the spread (green line) starts heading north it could be a good sell signal on longer dated bonds and interest rate sensitive stocks such as utilities and preferred stocks.

 

 

 

 

 

 

 

 

 

 

 

j tlt

TLT is an ETF that tracks longer dated Treasury Bonds. They go up when interest rates go down. To make this chart I adjust the daily prices of TLT by changes in the U.S. Dollar Index like one of the gold charts above. It shows me what the pattern of trading is like for a non-Dollar investor. Billions from other countries is parked in our sovereign debt. Everyone knows that we will never be able to pay it off just as they know that Japan and European countries will never pay theirs. But investors need a place to park wealth and our bond market is the deepest and most liquid in the world. Buyers of our long term debt are stepping in and keeping the price up despite the robust economy. When the green line is breached it could spark a flight to shorter dated paper as it becomes obvious that longer dated bonds are falling in price. The crash of 1929 started in the bond markets with defaults on sovereign debt in Europe and S. America. You have to watch the bond markets every day.

 

 

 

 

 

 

 

 

 

dollar flow

I read Martin Armstrong at Armstrong Economics.com He claims that international capital flows are more important to our stock market than earnings, dividends and price/earnings ratios. He says that the next leg up will be driven by money escaping Europe where there is a smoldering banking crisis and that is why you see the Dow Jones Industrials out performing the rest of the market. Money from overseas buys the big name blue chips rather than the less well known issues.

I still see the Dollar as vulnerable into early next year. Many times currency trends end with the turning of the calendar. The upward correction in the yellow rectangle was very simple and quick. I am looking for some kind of sideways, complicated form before a good low. Shorter term, the Dollar is a little over-sold and currency traders are very long Euros versus Dollars. This warns me to not bet on the Euro or a lower Dollar against the Euro at this point.

 

 

 

 

 

 

 

 

 

Nas 100 dustDj dust

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a 20 day chart of the Dow Jones Industrial Average from the Investools.com web site. On the right is the index I like to trade, the NASDAQ 100 that includes lots of high tech stocks. Note the disparity between the two. For a while last year, unless you owned the big named tech stocks you were not keeping up with market performance. They were the only things going up. This drove a lot of money into a few names. This makes them very vulnerable.

 

 

 

 

 

 

 

 

 

Apple dust3MM dust

 

 

 

 

 

 

 

 

 

 

 

 

 

Two of the standard bearers for each market measurement highlight the relative performance. Traders could not buy enough 3M while selling Apple. Last night the Senate passed a new tax bill which investors are sure will boost the economy and add another 5% to next year's earnings. In anticipation, money managers have gone all in on the stock market over the last month with cash levels at record lows. Hedge funds are long and leveraged, borrowing against shares to buy more shares. When I was a stock and commodities broker back in the 80s the old timers used to tell me, "Buy the rumor, sell the news."

 

 

 

 

 

 

 

 

 

f top

 

 

 

 

 

XLF is the financial sector SPDR. Over the last two weeks investors rushed into financial and industrial stocks as these two sectors are thought to benefit most from the pending tax legislation. Long time readers might remember that my target on XLF was 28 based on Fibonacci ratios of previous moves. We hit 27.71 on Friday.

 

 

 

 

 

 

 

 

 

 

 

 

 

Corning

 

 

Corning is one of my favorite companies. They actually make stuff as opposed to guys sitting in front of computers writing code and figuring out ways to sell things for less money, yet they are involved in high tech with their world class glass products. I had the pleasure of visiting the Corning Glass museum in Corning NY with a long time Corning R&D person as my guide. It was one of the best museum visits I ever had. The technical side of the museum is an amazing example of ingenuity and industrial progress. Never the less, the stock looks like it advanced in five waves and could be ready for a breather.

 

 

 

 

 

 

 

 

 

 

 

 

dj lines

 

 

 

 

 

 

The Dow Jones Industrial Average also looks like it completed a five wave advance. Yes, it could be part of a 13 wave advance that goes a lot higher but the five finished waves have the potential to correct especially since the parallel line of the one crossing the bottoms of waves two and four was met with last week's surge.

 

 

 

 

 

 

 

 

 

 

 

 

dow j top

 

And I have a similar pattern in my chart of the Dow Jones Industrial Average adjusted for changes in the U.S. Dollar Index.

I like the tax bill and agree that lower U.S. Corporate rates are good for business. The individual rate changes look like a re-shuffling of the tax burden. Deficit hawks know that lowering taxes results in eventual greater tax revenues to the governments but you have to think of governments as nothing but companies and legislators as executives and share holders in those companies. They believe that every Dollar should flow through their hands. Their power comes from allocating their take to groups and donors who will support them in return. Even among Republicans there is no real desire to lessen their take of the economic pie.

December is usually a decent month for stocks. If we trade flat to down it will be a warning for January.

 

 

 

 

 

 

 

 

 

asia

 

 

 

Asian markets stumbled a bit last week. In China, the bond market sold off and stocks followed. The government is trying to rein in some types of credit that they view as risky. If you read a book about the great depression you find out that our government tried to do the same thing during the stock market run up in the late 1920s. The question is, how do you target credit contractions so that the squeeze on liquidity does not spread. The Chinese government can put money managers who sell in jail so for this market to decline the way it did last week is a warning.

 

 

 

 

 

 

 

 

 

 

 

 

Cocoa d

 

 

 

 

 

 

Cocoa broke above a trading range and gapped into a high. It is now back into that range. The slow stochastic oscillator that I use as a trading tool is at the bottom of its range. Depending on how the short term squiggles look early next week I will consider buying again.

 

 

 

 

 

 

 

 

Strategy for the next couple of weeks - Stocks look dangerous to me. Everyone is bullish and fully invested in anticipation of lower taxes. Think of the last time you knew you had money coming in such as a bonus or tax refund. By the time the check arrived you had already planned five different ways to spend it and most likely some of it was already out the door. Any benefit from the tax package is already in prices. This is what markets do. They discount the future. Lower taxes are a risk. Debt was doubled under the Obama administration and greatly increased under the second Bush. In the 60s and 80s lower taxes led to much higher tax receipts but Congress spent it all and more. The outgoing cash flow from interest payments on our debt threatens to swallow the budget unless we have sustained growth above 3%. The real question is: have we already passed the tipping point? The Fed is likely to raise short term rates this month. If rates on the long side of the market (see above charts) begin to move higher as they usually do in a strong economy then refinancing costs for Federal, State and Local debt will also increase off setting higher revenue. Some states and cities are already close to default. The whole system is fragile. Let's hope it is not too late! I am keeping a small gold position and will add to it if the metal gets clobbered. I am keeping my CORN for the long haul. Food is the oldest and safest form of money.

 

Best of Luck,

DBE