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 November 18th, 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.

 

Chart of the Week!

 

corn

 

 

In past updates this Barchart.com graph showed the coiling action in corn futures. Corn looked like it was making a contracting pennant for a final thrust lower. Last week it broke the previous lows and quickly fell. On Friday it reversed. If reality follows art this should be the low. Sentimentrader.com, a web site to which I subscribe says that corn is the most disliked commodity. If you like buying em when everyone else is selling then now is the time. There is an ETF, CORN that tracks corn futures so you can play it with this stock.

 

 

 

 

 

 

 

 

 

 

 

 

 

dba low

 

DBA is an ETF that tracks a basket of agricultural commodities. If the risk of being in a single item like corn is too great then DBA is another way to bet on higher agricultural prices. Lately, the CFTC Commitment of Traders reports are showing that users of grains and other agricultural crops are net long. This is unusual. Most of the time they are holding inventory and selling short as a way to hedge a potential price decline. Now they are more worried about prices rising and having to purchase at higher prices in the future so they are buying futures and forwards to lock in current prices.

With both corn and DBA, even if I am wrong you can see that you are not buying the highs.

 

 

 

 

 

 

 

 

 

 

 

 

goldman

 

 

This is a chart of the Goldman Sachs Commodity Index from the Barchart.com web site. Agricultural commodities are a sub-set. On financial TV and radio, commentators are very positive about emerging market stocks and part of the reason is that many of these countries supply raw commodities and do well when prices go up. This five year chart shows you that even though the prices are improving they are still low relative to recent history. Note the stochastic oscillator in the lower part of the chart. In the past, when it got to the upper end of its range, commodities sold off a bit. It would be unwise to assume that this time it will be different.

 

 

 

 

 

 

 

 

 

 

 

 

eem high

 

 

 

 

On Bloomberg radio this morning another analyst was encouraging investors to allocate more money to Emerging Market stocks. EEM is an ETF that tracks the emerging market sector. It is up 64% over the last couple of years. Where was he in January of 2016? Looking at the stochastic oscillator on commodities and the big move that is already in this market I would be hesitant to commit money now.

 

 

 

 

 

 

 

 

 

 

 

 

 

rank zero

 

The blue line is an index of gold mining shares. The red line counts how many times this industry group placed in the top 20 performing industry groups over the last ten weeks. As of Friday's close the gold mining group was at zero. This chart goes back 17 years and you can see that there were only a few other times when the gold mining group failed to have a good week over a two and a half month period. In past cycles these low points were followed by hits in the top 20 over the next few weeks. Remember, this measures relative performance. If the stock market hits the skids and most industry groups decline, gold mining could also decline but not as much as other groups while earning a top 20 score.

 

 

 

 

 

 

 

 

 

 

 

 

try xau

 

XAU is another index of gold and silver mining stocks. One way to frame its pattern is to see it making a contracting pennant formation, like Corn, above where after a brief surge toward "e" the price drops toward 68 then begins another up cycle. My experience with contracting pennants and "e" legs is that they sometimes fall short of the trend line so being a perfectionist and waiting for the perfect form is not advised. Also, the "e" portion is often made in response to some type of flashy news story.

Markets can do anything they want so this form does not have to emerge as fantasized. But, if you see it happening you will know what it is.

 

 

 

 

 

 

 

 

 

 

 

 

 

dogs g

The area marked in pink shows the movement of gold relative to the blue line which is XAU, an index of gold and silver mining stocks. Investors buy mining stocks for an out sized pop. When gold is jumping the shares have a volatility premium built into them. When gold is little changed over time that premium drains out of them. Some gold bugs like to infer future moves in gold by the behavior of the stocks. I see their under performance as logical disappointment. Think of a bank loan or an airline flight. The best possible thing that can happen is that the loan gets repaid or the flight is on time. With gold mines the best thing that can happen is that they produce as expected. Mines are harsh environments where equipment constantly fails and things don't go as planned. The geology is never 100% as predicted and governments at all levels are constantly trying to squeeze money from the operation because they think it is "a gold mine" that can be milked. If gold and silver show few prospects there is little reason to buy and hold. If gold rallies next week you could see some of that volatility premium come back into the stocks.

 

 

 

 

 

 

 

 

 

gold dotted

 

 

 

 

 

We could be looking at a brief bounce before another sell off into the same time period as the previous two years' lows which were closer to the end of the calendar year. Note the dotted red lines. The left side one measures the advance from $1,260 to $1,303. A move of similar size from last week's lows would end a bit above $1,310.

 

 

 

 

 

 

 

 

 

 

 

 

 

favored au

 

 

 

 

 

 

My favored future for the metal is a test of the 2015 low sometime in the next couple of months. I have no idea of what the news background would be to cause such a major low for the metal.

 

 

 

 

 

 

 

 

 

 

 

 

 

ag pop

 

 

 

If gold takes a brief hop higher then silver should do the same. $17,70 to $18.00 would be the equivalent target. CFTC statistics show that "commercials", in this case mining companies and dealers who lock in future purchases from the miners, have large short positions in the metals. This is usually a negative for their prospects.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

pt risen

 

 

 

Platinum rallied a bit last week. Maybe the dead can come back to life. Palladium sold off a bit. There could be "spread trades" that were unwound where traders were long palladium and short platinum and they closed them out by selling palladium and buying back their platinum contracts. Why would someone do that? Picture yourself at the gym or other social situation. The guy next to you is talking about how he switched from one Fidelity sector fund to another. You casually mention that you unwound your palladium, platinum spread. Qien es mas macho?

 

 

 

 

 

 

 

 

 

 

 

 

au dolled up

 

 

 

 

 

This chart shows gold prices adjusted for daily changes in the U.S. Dollar Index. It gives one an idea of the pattern to a non-Dollar buyer. I drew in letters and lines favoring an upward resolution of the contracting form. It could break either way and trying to front run the move can endanger your wallet.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

dollar yellow

 

 

 

Two weeks ago, traders were extremely bullish on the prospects for the U.S. Dollar. I wrote that if I wanted to buy I would wait for a pull back. We got it. Short term, it is a bit over-sold so one would expect an attempt to rally a bit.

Note the simple rebound in yellow at the start of the decline. If the Dollar is going to make new lows then the current upward correction should alternate in pattern. It should take longer and have a few changes in direction before a final move down.

 

 

 

 

 

 

 

 

 

 

 

junkopalypze

 

 

 

Previously I noted that junk bonds were diverging from the popular stock market averages and that this is usually a warning sign for stocks. By last week the slide in low grade debt was a regular topic on financial networks. Experts claim that most of the weakness is contained in telecom debt and lower grade issues of auto loan and student loan collateralized debt which are experiencing disturbing rates of delinquency. Debt problems tend to spread so watch shares of JNK, the ETF that tracks junk bonds. So far you can say that the selling is minor. If it falls below 36 it will indicate deeper problems.

 

 

 

 

 

 

 

 

 

 

 

spreads comp

 

The bond yield curve continues to flatten. A lot of people look at twos and tens. I like to track the Ten Year T Note versus the 30 year T Bond. The flattening of the curve was a big topic among the financial wizards with all types of explanations. The point of being interviewed on financial media is to sound like you are smarter, more sophisticated and "deeper" than the next guy because people with money to invest think of themselves that way. Being "right" is secondary. If you still read a guy who was telling you to buy silver at $40 and gold at $1,500 because of his colorful commentary you know what I am talking about. A flattening yield curve is usually not associated with a healthy growing economy. It also spoils a lot of "carry trade' business where you borrow at low short term rates and lend at higher, long term rates. As the curve flattens out the return for the carry trade does not compensate for the risk.

 

 

 

 

 

 

 

 

 

obv fxlf 3

 

 

 

 

 

 

 

 

 

 

 

 

 

This should put the brakes on shares of companies that borrow short then rent money such as banks and the big Wall Street firms. Above are two charts of XLF, the financial sector SPDR. On the left I drew lines suggesting that we are still in a complicated correction of "3." On the right is XLF with an "On Balance Volume" tracker in red. The numbers say that we completed five waves up and the fifth leg was accompanied by lagging upside volume that creates a divergence with price. This means that volume was a lot heavier on down days than up days, usually not a promising characteristic.

 

 

 

 

 

 

 

 

 

Tech heavyJones

 

 

 

 

 

 

 

 

 

 

 

 

 

These two charts are from the Investools.com web site. Things were looking good for my "sell off' scenario from last time until Thursday. Stocks popped on news of the tax proposal in the House. On the right is the Dow Jones Industrial Average. Note that the late week rally failed to take out the previous highs. Every guy with a chart is looking at the potential "head and shoulders" formation between the black horizontal lines. If we drop through the lower black line it will be a sell signal. On the right is the Tech Heavy NASDAQ 100. It had a better day on Thursday, making a new high. In past markets, after an extended up move based on expectations of an event, news of the event coming toward fruition often capped the market so caution is advised. Buy the rumor, sell the news.

 

 

 

 

 

 

 

 

 

APPLE highzon

 

 

 

 

 

 

 

 

 

 

 

the msL Goog

 

 

 

 

 

 

 

 

 

 

 

 

 

You wouldn't know it by watching a few headline stocks or the major averages but many stocks have been in a bear market over the last couple of months with expanding 52 week lows on the NYSE. Oscillators measuring market breadth were close to over sold readings going into Thursday. "The Market" has become extremely fractured with a small set of big name stocks holding up the Averages. Above are four of them so it is important to watch for signs of topping. If these issues start to have bad days the dam will break.

 

 

 

 

 

 

 

 

 

Wal m

Wal-Mart Stores had great earnings. Analysts say that they are the only retailer with the depth of market share and cash to fight Amazon. Last week Amazon announced that they were lowering more prices at Whole Foods and the market cheered. OK, you work for a company that does something. Are you trying to lower prices or raise prices as part of your long term strategy. Yes, I know that the popular model is to find efficiencies, lower prices and gain market share. There comes a point where you corner the market, do a huge volume of business and make next to nothing off of each transaction. As I have repeatedly stated, this is a fragile strategy. Any slow down in volume or loss of market share will quickly make profits disappear. People say that Wal-Mart is "old school" because they have stores where people shop. Amazon has hundreds of Wal-Mart sized distribution facilities all over the country that cost money to staff and keep running. Usually Amazon drifts higher before Black Friday then does not do that well as the smart money exits.

 

 

 

 

Strategy for the next couple of weeks - I see the probability of a quick little pop in gold so I bought last week. It is just a trade, not an investment. Stocks usually have a very low volume period right before Thanks Giving with an upward bias. At the bottom of the Dow Jones chart is a slow stochastic oscillator and it is at the low end of its range hinting that the market could try and rally early next week. I am looking for another spell of weakness after Thanks Giving. Things are priced for perfection in the basket of stocks holding up the major averages. Investors have concentrated their bets in a smaller and smaller group of winners while many stocks trade sideways or decline. Things like that eventually catch up to a market.

Have a great Thanks Giving.

Best of Luck,

DBE