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 August 4th, 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.

 

Many people are on vacation. Even though the end of June marks half the year, in a way the end of July feels like it because most of us vacation a bit during the six weeks from mid-July until the end of August. This break feels more like the half way point. I am a short term trader so I look for small inflection points in markets highlighted by short term over bought or over sold oscillator readings and chart patterns. Sometimes it is useful to step back and view longer term things, especially when vacations are many and attention to detail is limited. You will see some charts from the Barchart.com web site. It is a great place to go to get free charts and data.

 

dbc cdj val

 

 

 

 

 

 

 

 

 

 

 

 

What is valued? What are things for which we are willing to pay a high price and what is thought to be plentiful and worthless? Since the low of 2009, our willingness to pay for shares of companies that project good future earnings has increased while commodities are out of favor. DBC, the chart on the right is an ETF that tracks the Reuters CRB commodity index. If you subtracted Oil from its calculation it would look worse.

 

 

 

 

 

 

 

 

 

dba lownas v

 

 

 

 

 

 

 

 

 

 

 

 

 

The willingness to "pay up" is increasingly concentrated in a small group of technology stocks. On the right is DBA, an ETF that tracks agricultural prices. Before the industrial revolution a theory of economics was that land was the key ingredient in the economy. Large land owners saw themselves as the essential agents of wealth. Land and territory deserved to be fought over because the more you possessed the more secure and wealthy you were. It made sense because most economic activity was related to farming and its down stream distribution. When the industrial revolution hit its stride the factory was the new essential item. Those of us who had to torture ourselves with Marx in college read about his theory that men are what they produce. As they transitioned from farmers to factory workers the product of their labor and who they were passed down assembly lines and out the door. Human identity was lost. Marx said that even though the factory owner built the business it was really the worker who was the essential point of value. Now, we pay high prices for tech stocks because it is no longer the building, worker or the metal in our machines that is valuable, it is the software and sensors that drive business. When I bought a new Ford in 2016 the salesman said, "You are no longer buying a mechanical item. You are buying a computer that happens to be hooked up to an engine." In 2007 and 2008 when food prices were high due to a bad drought in the middle of the U.S. there were predictions of future food shortages because old farmers were retiring and the profession was unattractive. Since then a new generation has become interested in farming along with the application of technology. Drones and sensors monitor moisture levels in fields and GMOs produce more per acre than ever before. The back and forth movement of farm equipment over fields is custom made for unmanned vehicles that can be programmed or driven with a joy stick. There is no drought this year and crops in the U.S. look good.

 

 

 

 

 

 

 

 

 

corn 20z deliv

 

 

 

 

 

 

 

 

 

 

 

 

 

In the last update I featured charts of Amazon and FaceBook and mentioned that they were two of the last "straight up" stocks. A few days later Facebook earnings came out and disappointed. Amazon's earnings were good and the story is still in tact. People pay for future Amazon earnings because of their distribution technology. Many producers of the things they sell are not doing as well. On the right is a 20 year graph of corn prices. We are nearly back to where we were a decade ago despite the economic growth and increased demand for beef, chicken and pork which corn feeds.

 

 

 

 

 

 

 

 

 

Soy 20g up

 

 

 

 

 

 

 

 

 

 

 

 

 

AlphaBet, the old Google also had great earnings. The stock surged then pulled back. Can you tell me all the things GoogL does to make money? I know they are number 1 in Search and Ad revenue that goes with multiple clicks by consumers and that this is the heart of their business. They also have a cloud business. Whatever they do it is part of the picture of the future just like my Ford where the "things" will only have value in that they are connected to computers and sensors. On the right is a 20 year picture of Soy Bean prices. Beans are crushed into meal and oil. The meal is animal feed and you find the oil in many things that you eat. The theory was that bean prices had to go higher because of the expansion of wealth and demand for a higher protein diet. Farmers did such a good job that prices are testing decade long lows.

 

 

 

 

 

 

 

 

 

dog fbT

 

 

 

 

 

 

 

 

 

 

 

 

 

A constant trend in my life time is the decline in the cost of communication and evolution of communications platforms. In the early 70s when a friend drove me back to college I notified my parents by calling home, letting the phone ring twice and hanging up. Long distance calls cost a lot of money back then. If the phone rang without being picked up there was no charge. If you mention this to anyone in my generation they will have similar memories. AT&T ruled the communication world. Are Facebook and Twitter part of the same cycle of communication deflation? With any new technological advance comes investment, profits to the early entrants, more investment in new competition, price euphoria as the profit cycle peaks, margin shrinkage as the fight for market share heats up, lower earnings and stock prices then bankruptcy for some. We are currently valuing some technology companies as if this cycle will not repeat while we are taking for granted our future food supply, something that is in the hands of nature, not technology. If you are a long term investor and you like to buy things when they are down and avoid things that have been bid up, look at the first two sets of charts.

 

 

 

 

 

 

 

 

 

tlt cheap

Money is very cheap. Look at three ways that redistribution takes place. 1. You do something that someone else is willing to pay you for doing. If you want more money you increase your skill set to be able to harvest more of it. 2. Government or private charity. In the first case, laws are passed forcing some to send part of the result of their hard work into the government. The government gives it to people who qualify for free benefits apart from their personal behavior. Private charities are not coercive but sometimes the money comes with demands on current behavior. 3. You borrow money. Rarely in economic history has it been this inexpensive and easy to borrow money. TLT tracks longer dated U.S. Treasury Bonds. Throughout civilization governments repeatedly defaulted on their debt yet investors are willing to accept an interest payment of around 3% to lend to the biggest debtor in history. TLT looks like it is rolling over. Are we near the end of the era of cheap money?

 

 

 

 

 

 

 

 

 

 

au week

 

 

 

 

Here is an update on the weekly closing price of gold and an RSI momentum oscillator below in red. On a technical basis gold is about as "over sold" as it gets. Does that mean it "has to" rally? No, but I never bet on the short side of anything that has a weekly RSI reading this low. Stats from the exchanges show that commodity funds are net short over 20,000 contracts. Traders are convinced that gold is dead and it is still well above its 2015 low!

 

 

 

 

 

 

 

 

 

 

 

 

 

Euro 6 moEuro 5

 

 

 

 

 

 

 

 

 

 

 

 

 

The "who needs gold when things are great" sentiment means that on many days the metal trades in line with non-Dollar currencies and especially the Euro so it is worth looking at the Euro chart. On the left is a five year chart of the Euro against the Dollar. On the right is the last six months of daily action. Most analysts are thinking that the shelf of support around the red line will give way. As with gold, sentiment on the Euro against the Dollar is very sour. The common theme one hears when reading chart gazers is that "there should be at least another low on the Euro below the congestion range that formed over the last month." Gold traders are listening to the same thing and are short the metal, thinking they will cover when the Euro takes a dip into the 114s.

 

 

 

 

 

 

 

 

 

 

up may

Trading experience tells me that playing for that one last down move can be hazardous to your wallet, especially when a market is extremely oversold on a technical basis and trend following hedge funds are very short the item. The Euro could sell off again but the circumstances around its decline could also scare holders of Euros into gold. On Friday, gold sold off toward $1,204. China announced increased margins for forward currency trading. The Dollar sold off, the Euro rallied and so did gold. It quickly reached $1,220 then fell back toward $1,213 on the close. If it doesn't follow through to the down side early next week there will be a lot of nervous shorts.

To the right is a possible pattern for which I will be watching.

 

 

 

 

 

 

 

 

 

 

 

 

ag lows

 

 

 

 

Silver is also on its lows of the last few years but by weeks end there was not a lot of desire to sell it. During Friday's China inspired rally it came within a fraction of a cent of its high for the week before pulling back. Experience tells me that this kind of action is the sign of most sellers having used their energy. I rarely bet on silver in either direction because it does the opposite of what the best minds and all logic predict. I would not want to hold short positions at this point.

 

 

 

 

 

 

 

 

 

 

 

 

 

no friends

 

 

 

Mining stocks have no friends. Think of the summer of 2011 when you were getting e mails about drill holes and discoveries in third world countries. Now, gold is just another "thing" and since it is unattached to technology it, and the companies that mine it are grossly out of favor. If you listen to one of the three financial channels early in the morning, when is the last time you heard them interviewing someone who recommended a 10% position in gold or a weighting in gold and silver mining companies? This is a group that is getting sold out.

 

 

 

 

 

 

 

 

 

 

 

 

 

ppdt

 

 

 

Platinum users are catching a break with prices retreating below $900 but as with gold and many other commodities, we are at the bottom of the sentiment gauge, in an area where past cycles tended to bottom. Palladium also caught the commodity sickness despite fears that there could be a shortage of the stuff. The recent low below below $870 and quick snap back looked convincing to me. If you were desperate to buy it at $1,000, why doesn't it look attractive at $906, Friday's closing price?

 

 

 

 

 

 

 

 

 

 

 

 

 

oil drop

 

Earlier this summer there was a unanimous consensus that Oil would go higher. The disagreement was its future level. Some analysts were predicting $80 to $90 while others were looking for $100 plus. Usually this kind of group belief is a recipe for a top and it turned out to be the case this time around. I think the bullishness on oil and the stock market are related. Oil analysts see higher stock prices as a sign of a future robust economy. This infers greater demand for energy. Inventory numbers in the U.S. are not cooperating with the scenario as production increases. Libya and Venezuela are current production problems but my experience is that money talks and everything else walks. It is just a question of time before both countries resolve their problems in an oil producing friendly way. Iran is more of a wild card but again, when push comes to shove, the cash flow from oil will win out. I am guessing that we are looking at a major peak.

 

 

 

 

 

 

 

 

 

P slow

 

In case you are keeping score, within a few days of me posting my web site there tends to be a sell off. The following week the market rallies and allows me to short it again. Now that I mentioned this pattern it is probably finished. The S&P 500 is flirting with January tops. The slow stochastic oscillator is at the high end of its range so I am once again on the "pull back" side of things. Analysts who follow breadth statistics are warning that while the index challenges its former peak, fewer stocks are seeing new highs and many are rolling over. In past cycles with good quarterly earnings reports, stocks held up through the reporting weeks then tended to give way afterwards. I am hoping for the same this time around.

 

 

 

 

 

 

 

 

 

 

 

 

java

 

 

 

 

 

Coffee, while being one of the most out of favor commodities is one of my favorites. I continue to add to my position as the price drops. At least I am not buying at the highs. Lately it has been trading like gold and the Euro, rallying on Dollar weakness. In most past cycles this was not a bad price range to take a position.

 

 

 

 

 

 

 

 

 

 

 

 

 

the shang

 

How can you buy commodities when the biggest source of demand might be in trouble? That is a good question. Still, in past cycles there were also "reasons" why commodities were doing poorly but when sentiment reached extreme levels of bearishness as we are seeing now, something happened to lift prices over the next year. The real question should be: If the Chinese economy, a major driver of the world's economy, is slowing, why are the stock market averages in the U.S. close to their peaks?

Next two weeks - I am holding on to my coffee and gold and shorting stocks again. Despite my longer term view of the bond market I am looking for a pop, just because The Street is expecting higher rates (lower bonds) and spec funds are very short the bond market.

 

 

 

 

 

Best of luck,

DBE