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 September 16th, 2018

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.

Over the past months I emphasized the high valuation given to equities, particularly companies that provide the systems and software to transact business with fewer people such as Amazon. Value is no longer seen in a machine or worker but in the software that allows the worker and machine to be more competitive. At the same time, basic things such as metals and food stuff are being ignored. This shows up in the weekly Commitment of Traders reports form the CFTC. "Commercials" are companies that deal in commodities. Usually they are holding inventory and they have short positions in futures contracts. This is because they do not risk money on ups and downs in the value of their physical inventory. If they buy 1,000 ounces of gold from a mine they sell short 1,000 ounces of gold on the futures exchange or in forward contracts in London or with other dealers. Currently, commercials in precious metals and copper and agricultural contacts such as coffee are net-long. They are buying commodity futures in the items they trade. This means that they have future deliveries to which they committed and they don't have the inventory to back those deliveries. They will have to buy in the open market so they are buying futures in these underlying commodities to protect themselves from price increases. If the price of soy beans rises fifty cents and they have to buy beans in the spot market to deliver to a client they will buy $0.50 higher but their futures contracts will be up the equivalent amount, negating the impact of the higher price in the physical market. I have rarely seen commercials in the commodities markets be in net long positions and in the past it was near very good, tradeable bottoms. This has been going on for weeks while prices trade sideways to down. It is tempting to ask if it is different this time. Back in the 80s or 90s there was a story in the Wall Street Journal about a very wealthy Asian gambler who won a huge amount at the tables in Las Vegas. The casino sustained a large loss. In response they called in consultants who were PhDs in math and statistics to study their games and analyze the loss. The answer was that the odds favor the house. The client got lucky. The casino needed to keep him at the table longer to allow the odds to work in their favor. They invited the guy back and told him that his legendary win was good business for the casino and they gave him a free room. He went back to the tables and lost most of his gains. The moral of the story is that perhaps, when we see statistics such as current positioning by commercials in metals and food stuff, we need to be able to stay at the table longer to allow the odds to return to their historical trend. Of course, this could simply be mental justification by someone who is engaged in wishful thinking but it is wishful thinking that makes the day better. We can't be all Doom and Gloom so here it is: wishful thinking for this week.

 

 

dollar wish

 

Last time I wrote that markets would be greatly influenced by the action in the Dollar Index. This proved to be true. When it sold off, gold and other commodities popped a bit. Last week it fell again then rose into the end of the week. My favored path for the Dollar is shown on the chart to the right. If reality follows my preferences then we will see a further rebound of the Dollar early in the week followed by another round of selling. Longer term, the whole pattern would be a correction before another advance as shown by the blue line in the chart but in the mean time a Dollar period of weakness would take the boot off of the neck of precious metals and some other commodities that are experiencing historic pessimism.

 

 

 

 

 

 

 

 

 

 

 

 

gold nerv

 

 

 

This is a graph of December gold futures over the last month from the Barchart.com web site. A lot of chart geeks will be paying attention to the $1,190 range that provided support in late August. If the Dollar rallies early next week this level could be broken. If the Buck gets back to 95.50 I will look to buy gold related things.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

silver nerv

 

 

This is another Barchart.com graph.

They are still featuring adds on TV about silver doubling. Included in the text is reference to silver rallying recently. I don't see any rally. Hedge funds that tend to be trend followers have record short positions in silver futures. These guys hold large positions near turning points in markets. They have been correct so far but what we might need is one more week at the casino.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

simple ris

 

 

The simple RSI momentum oscillator is still at the low end of its range. Past readings were decent times to buy. Again, I have to go with the odds and time.

A lot of very smart people are looking at the same thing. Many of them told themselves that when they saw a similar set up they were going to buy, buy, buy but when these types of events happen there is no logical reason to own the stuff and its future seems hopeless. As mentioned earlier this year, I remember waking up at night when gold was trading at around $250 an ounce and saying to myself, "There is no reason it could not be at $50 an ounce next week." That was the low in 1999.

 

 

 

 

 

 

 

 

 

 

 

ma 2ma 1

 

 

 

 

 

 

 

 

 

 

 

 

Many hedge funds are trend following systems that use moving average formulas to get in and out of trades. What is interesting is that when you take a close up look at the daily closing price of gold and a series of moving averages based on Fibonacci Numbers, the colored lines are beginning to flatten out meaning that a few good days at the track could tell the computers to get out of those record shorts. If that happens you will see big positions trying to squeeze through a small window. Sellers will pull their orders and an air pocket to the upside will result. Or at least that is my fantasy trade.

 

 

 

 

 

 

 

 

 

miners

 

 

 

People who owned gold and silver mining equities are at the point where they are writing notes to themselves that say, "Never buy a mining stock. Never buy a mining stock, never buy a mining stock!" The pattern from the August of 2016 high looks like an A down, B contracting pennant then C burst down below the pennant. Typically, after the near vertical sell off there are a couple of rally attempts then further sell offs as the last investor gives up and begins to see his previous love of gold mining shares as some kind of psychological problem of which he has now cured himself.

 

 

 

 

 

 

 

 

 

 

 

 

 

cpbase dbb

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is DBB, an ETF that tracks a basket of base metals. On the right is a weekly copper chart. A couple of years ago at the PDAC conference in Toronto I heard an "expert" predict much higher copper prices based on the electrification of Africa, the rest of Asia and the adoption of electric cars. It doesn't look like it worked out well. Copper is among the metals where commercials are taking long positions instead of shorting to hedge inventories. In the mean time, one could count a five wave rally from low to high with the current malaise looking like a normal correction back toward the fourth wave of the previous cycle rally.

 

 

 

 

 

 

 

 

daily oilslong oils

 

 

 

 

 

 

 

 

 

 

 

 

 

Longer term readers might remember that I was looking for oil to rally into the low 70s based on the sideways pattern between the A and B on the left side weekly graph. The right side daily chart shows the action following point B. One can make the case that it completed a five wave formation, the minimum requirement following the weekly form. Traders are going to watch the humps to either side of the 5 on the right side chart to see if oil is making the dreaded "head and shoulders" pattern that would signal a major top. A break under 65 would have everyone who every looked at a chart book selling. Anyone who bought since April will be sitting on a loss.

 

 

 

 

 

 

 

 

 

tlt re

 

 

I am not a fan of government bonds of any country. History says that major sovereign borrowers default eventually. TLT tracks longer dated (20 year plus) U.S. Treasury Bonds. When bonds go down it means that interest rates are rising. It is astonishing that interest rates are not higher than they are with the economy booming like it is. The bond market is short term "over sold" on a technical basis meaning that it fell over the last couple of weeks very rapidly and in past cycles when it did so there was some kind of counter move. What could cause investors to put some money into U.S. Government bonds? Perhaps a weak stock market.

 

 

 

 

 

 

 

 

 

 

 

 

 

r 2ir spread

 

 

 

 

 

 

 

 

 

 

 

 

 

Depending on what stock market index you follow, the market recently made new highs or recovered much of what it lost in a few weeks following January 26th. The Russell 2000 is featuring a fairly reliable pattern. The daily chart on the left shows that it made a contracting pennant followed by a burst higher and reversal. There is a good chance that this marks an important top for small cap stocks. The Barchart.com graph on the right gives a close up view.

 

 

 

 

 

 

 

 

 

nyA h

 

 

The NYSE Composite is one of those stock market measurements that is still below January's highs. Over the last few weeks the market triggered a number of "Hindenburg Omen" and "Titanic Omen" signals. Typically these mean that even though some of the major averages are advancing, they are doing so while most stocks lag and the number of companies hitting new 52 week lows is increasing. In past cycles, individual Omen events were often false alarms. Clusters of them, like we are now seeing, led to sell offs most of the time. A similar thing happened in 2017 and the market kept going up so nothing works all the time. The cluster occurrence works enough of the time to cause caution.

 

 

 

 

 

 

 

 

 

 

 

 

n warning

Indices dominated by a handful of tech names such as Google, Amazon, Apple, Microsoft and Facebook were the winners. Over the last couple of weeks, the NASDAQ 100 in which they are most concentrated began to buckle a bit. The Omen type warnings mentioned above hint at a stock market that is a bit like Jenga. This is a game that has blocks where you build a structure then each player removes a block. When the block is removed that causes the structure to topple, that player loses. Unless a new sector picks up the slack in a big way, any weakening by the handful of issues that kept things afloat this year could cause the whole thing to take a tumble.

Note: This has to be balanced with the following: Investors have been taking near record amounts out of equity funds and ETFs over the last month. In the past, outflows this extreme were seen near lows. It could be that we are in for a short, sharp sell off of some kind that will be one of the better buying opportunities of the year.

 

 

 

 

Strategy for the next two weeks: Commodities, especially precious metals - I am going to watch for another buying opportunity this week. I will be monitoring the Dollar Index for a brief rally that I see as a chance to buy more gold and silver related things. Stocks - it smells like we could be on the cusp of a sell off. I am short going into this weekend. I did not bet the farm on it but too many market sectors are moving sideways to down. Something could happen between us and China that could change that in an instant so again, no big bets. Just a hunch and a small bet. Coffee - keeping my longs. Commercials make up over 20% of the long open interest, a very very unusual event.

Best of luck,

DBE