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 1st, 2018

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.
















Dramatic market action gets attention and often leads to predictions of more dramatic moves. Often, those predictions don't work out. The original action that inspired them was the big earth quake and what is left are aftershocks of decreasing magnitude. Yes, our recent 2,700 point sell off could be the kickoff to a larger event but everyone thought the same thing in 1987 (left side chart). Along with fears of an impending market wipe out were predictions of a recession. After all, if the stock market lost a third of its value between August and October of that year didn't that mean that the economy was headed south? People with money were frightened and the economy stalled a bit. Prior to the 87 shock, real estate prices had been going up. After the crash no one wanted to buy. Other areas of consumer demand also faltered before recovering. Some of the predictions we are seeing now about a slowing economy could also be part of the aftermath of our recent sell off. Confident consumers extended themselves on credit cards, car and real estate buying over the last couple of years. On top of that, investors were extremely leveraged in the stock market thinking that easy gains would last. If a prolonged up market creates a "wealth effect," a sudden downward shock does the opposite. Note that after the 87 crash, the market traded in a range, tested the previous lows 7 weeks later then recovered. I am in the camp that thinks that after a consolidation, prices are headed lower but I thought the same thing in 1987 and I was wrong. I keep this 1987 chart near by to remind myself not to be certain about anything. Below are my arguments for this week's short term trading. I will use some charts from the web site, an excellent place to get free graphs on stocks and commodities.










Chart of the week!

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One of the market sectors that did well this year was health care and Pfizer is a big part of the weighting of any ETF in that sector. I remember when it was trading below $15 a share and Jim Cramer (CNBC - Mad Money) was calling it dead money. Well, it didn't die. It tripled in price. Look at the right side chart. This fall it made a contracting triangle formation, the kind that usually leads to a final blow off and big reversal. Given the pattern, we are likely close to a top in terms of time. Over the last decade, momentum investing gained in popularity. Big money jumps on winners and drives them higher, attracting more investors along the way. Before long there is a huge pool of wealth concentrated in a small group of equities as in the FANG stocks that were favorites going into October. I am on "reversal watch" for Pfizer and the health care sector just as I was for FANG stocks earlier this year.










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Two weeks ago I wrote about two possible patterns, one shown by the purple lines and the other by the red lines. I favored the red because sentiment toward the market was very bearish and the investor group that usually votes the wrong way at tops and bottoms was extremely bearish (per I still think that there will be more consolidation and another rally phase similar to the drawn in dotted lines, before another major decline.



















Here is an up close look at last week's rally. One could count the pattern as a completed five wave formation or at least three out of five of a larger five. The implication is that there should be some kind of pull back next week. This is purely chart mysticism since we could reach a great trade deal over the weekend or something else good might happen at the G20. Just looking at the charts, a sell off to correct some of last weeks's exuberance is likely.














mmm key




I view 3M as a key stock, a bell weather for the world's economy. It appears to have declined in five waves, in indication to chart wonks that the trend is now down. A normal sized correction would be a rally back toward the 220 zone but in bad down markets, sometimes counter trend waves are stunted.

Given 3M's pattern I am going to see any rally phase in stocks as a) a period to get traders optimistic again, b) a set up for another selling storm.














dow flatd stop














Last time I anticipated a top in the Dollar. The bullish consensus on the U.S. currency versus others was and is at an extreme. On Thursday when the Fed reported a neutral view of the economy the Dollar dropped. Currency traders priced in an additional Fed Funds rate increase in December which would make returns in T Bills more attractive than wealth held in short term deposits in Euros or Yen. Doubt about additional tightening combined with excessive optimism might be turning the trend on the Buck down for now. On the right is a chart of the Dow Jones Industrials with the daily percentage gains or losses in the Dollar added. Remember, there are trillions of Dollars worth of wealth moving around the world, looking for the best combination of currency plus asset. If money managers think that the Dollar is going to go through a weak spell and that our stock market topped, they will jump ship.














If you don't like the Dollar, where do you go? This is a chart of FXE, an ETF based on the Euro. It trades at a discounted price to the actual Euro but the price pattern is the same. The Euro finished the week near $1.13 while FXE closed in the $1.09 range. The EU is headed for a banking crisis and everyone knows it. The ECB is afraid to raise rates because it might make things worse. They have been the major buyers of the sovereign debt of weak countries within the Euro Zone and if they stop, who will buy this stuff? So, yes, there is good reason to dislike the Euro and keep your wealth in Dollars. Yet, bearishness toward the Euro is at an extreme and at levels where it rallied a bit in past cycles.











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My focus on the Dollar and Euro is because I like to trade gold related things and would like to see a Dollar pull back along with a pop in gold since they tend to move in opposite directions. With problems in the EU still brewing I don't expect a collapse in the Dollar, just a short term period of weakness that will allow gold to do a bit better. Remember, speculative commodity funds are net short gold futures, a rare thing and traders are either bearish on the metal or are no longer paying attention to gold and silver. This week, gold closed at $1,221.7 an ounce in NY. Last week's close was $1,222.3 and the prior week's was $1,221.10. I am hoping that neglect is the precursor to better prices as in the chart to the right.











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This is a chart of gold prices with the daily moves in the Dollar Index subtracted from the price of the metal. The pull back looks like a normal correction of a five wave up move.
















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I don't refer to Silver as The Gray Reaper for nothing. After making a text book five wave decline I expected some kind of reaction to the up side. Instead we have malaise and prices are close to the previous lows. Silver is among the most disliked commodities with large short futures positions held by speculators. That might be enough to spark a decent short covering bounce. On the right is a long term weekly chart of the metal's path. People who look for similar stopping off points on the way up and the way down will see the trading pattern in the similar colored boxes as matching sets. If we do get a pop its mate on the left would imply lower prices. If you started watching metals in the last ten years you probably don't even realize that silver traded below $8 an ounce for decades.










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On the left is a weekly chart of palladium. Futures for December delivery closed $30 above March futures because of a short squeeze on physical palladium. It would take a lot of courage to short this market (or foolishness) but one can count five waves up from the "c" point on the chart. There is nothing to prevent it from spiking higher but from a purely chart mysticism perspective, price did enough to make an argument for selling the stuff. On the right is Platinum which closed the week at $797. No one likes platinum or thinks it has a chance of doing anything except going down in price. The red line measures the price difference between platinum and gold. It hit -$424.70 this week, a new record. If you like buying things when no one wants them then now is your chance with platinum.










CLF 19oil low














How low can oil go? Looking at the left side, weekly chart of oil prices I suspect that more declines are coming but short term we should be close to a bounce. If this weekend produces no new news on oil production or if any news out there is disappointing and oil hits the skids first thing Monday, my guess is that it will be the last decline before a decent bounce. It was only 8 weeks ago that the world's top oil analysts were telling us that $80, $100 and $120 per barrel was guaranteed for 2019. There are no such things as "experts" in the oil price prediction world. The secret is that none exist in other markets either.
























On the left is a graph of Natural Gas Futures for January delivery. On the right is the same commodity with an April delivery date. Note the big price difference. Last week I read an article about an options trading fund that got wiped out because they bet heavily on flat or declining Natural Gas prices and got caught in a major short squeeze when futures traders were forced to cover large short positions. The price of the later dated futures is saying that there is plenty of Natural Gas in the ground and that any draw downs in inventory will be eventually replaced. In the mean time, going into delivery date for the January contract there could be even more of a short squeeze at some point.












March coffee futures pulled back into my buy zone. The crop looks good for this year and harvests are going well. There is no reason to buy but the move up from below $1.00 a pound has the right look to it. By this I mean that one can count it as five waves up which implies a correction then another advancing phase. Nothing works out 100% of the time so we shall see. Coffee bushes are planted in the mountains where frosts can damage them. Recently NASA reported that our outer atmosphere is cooling rapidly due to a lack of solar activity and drop in the surface temperature of the sun. Many sun scientists are predicting a period of cold for our planet. For some reason not really known these cycles of low solar activity coincide with increased seismic activity on earth. The ash pumped into the earth's atmosphere by volcanoes also adds to the cooling. I am buying the bushes before they freeze!










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Along with predictions of higher oil prices in September, analysts were telling us that interest rates also had to move higher. This chart shows the rate on 10 and 30 year Treasuries. Both declined and the spread between the two widened. Yes, a flattening yield curve was also one of the predictions. So much for experts.

















BitCoin - I never touch the stuff. If you can't make money in stocks or gold why do you think you will make money in BitCoin? Still, price looks like it made a contracting triangle followed by a thrust down. If my tea leaves are correct then we are working on the 4th wave down from the thrust with a fifth to follow ending somewhere between $2,000 and $3,000 per BitCoin.

Strategy for the next two weeks - Stocks: we should be close to a pull back just based on the short term pattern and oscillators at peak readings. I will keep my trades very short in duration using Slow Stochastic oscillators on ten minute bar charts. As mentioned below the 1987 chart at the top, in emotional times following big moves there is the tendency to think more major moves are going to take place right away and to think you are buying a big up or selling a coming collapse and instead the market trades sideways. The market could do this into January. Gold: The world dislikes gold and especially silver. I think the Dollar will pull back a bit more over the next few weeks and give gold a small pop. I am not looking for much, just bragging rights.


Best of luck,