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 July 15th, 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.

 

I am usually against market metaphysics. By this I mean some grand explanation of what is happening in one key market, linking the movement of other items to it and creating a forward looking scenario. Why? Because sometimes when you do that it makes a great deal of sense; so much so that you end up placing big bets and when it turns out that your scenario had great logic but nothing to do with reality, you lose a lot of money. But, what the hell. It is a slow summer weekend. Everyone is on vacation or thinking about going and it is fun to opine about the unknowable with confidence so here it goes.

 

 

d adj topd re top

 

 

 

 

 

 

 

 

 

 

 

 

 

This week's metaphysical question: Why do these charts look so different? Both show our Dow Jones Industrial Average. The one on the left is the graph you see in the news papers and on TV with the market moving to new highs. The one on the right is the same thing adjusted for strength, and lately, weakness in the U.S. Dollar. Last week, the value of the U.S. Dollar declined 0.9% against a basked of other currencies. Everything you own, including Dollar priced stocks lost nearly 1% in value on a world wide basis.

 

 

 

 

 

 

 

 

 

E 2 topE 1 top

 

 

 

 

 

 

 

 

 

 

 

 

 

Is the value of the Euro against the U.S. Dollar the real market to watch. When I think of the "big worries" over the last year, one of them was the persistent deflation and lack of economic growth in the the Euro zone. Then came BREXIT, the French elections that looked like they could go to LePen and popular "get out of the Euro" movements in other countries and let's not forget immigration and terror problems. Macron won and economic statistics look better in Europe. There is renewed confidence in the future and talk about removing some Central Bank stimulus. In the mean time the Euro looks like it is making a classic "flat correction" in a down market. That would be three legs up, three legs down to just below the original low and five waves up to a level just above the green "a." This renewed Euro Zone confidence as the Euro finishes its bear market advance could be the key to stocks and gold.

 

 

 

 

 

 

 

 

 

g adj topau top 1

 

 

 

 

 

 

 

 

 

 

 

 

 

Look at the left side chart. Gold rallied between 2008 and 2011 based on the premise that the massive Central Bank creation of fiat currencies around the world would foster debasement, especially of the Dollar and lead to hyper-inflation. Deflation persisted and the U.S. looked like the safest place in the world to park wealth. The Dollar rose against other currencies and the gold story fell apart. The right side chart shows gold adjusted for weekly changes in the value of the U.S. Dollar. It is a picture of its pattern for non-Dollar investors. Earlier this year I read Mohamed A El-Erian's "The Only Game in Town." If you watch any of the business channels he is a regular guest. In his book he says that the Central Banks' intervention in the world's major economies is a first. Nothing like this has happened in economic history. No one knows how it will end or what will happen when "normal" times return. It could be that the story for gold is just unfolding and that in non-Dollar terms the sideways action following 2011 is a pause before a major advance.

 

 

 

 

 

 

 

 

 

g yen bigG EU big

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a longer term chart of gold priced in Euros and on the right, gold priced in Yen. There are three big currency blocks with huge pools of tradeable debt where it is thought that you can safely park wealth. The first is the Dollar then the Euro Zone and lastly, Yen. Gold is a hedge against government failure and the crashing of a currency that comes along with that government. Notice how little a sell off gold experienced in terms of Yen. Everyone knows that the interest payments on government debt of all three currency blocks will eventually overwhelm the countries' ability to tax and that already, high taxes are causing economic stagnation. The gold price could be telling us that Japan will be the first to crack.

 

 

 

 

 

 

 

 

 

gold the big

 

 

 

 

 

 

Given gold's move from $250 to above $1,900 the sell off following 2011 fits within the range of a standard correction. For those who loaded up on precious metals, convinced that economic Armageddon was approaching the multi year decline has to be painful.

 

 

 

 

 

 

 

 

 

 

 

 

 

g euro bottom

 

 

 

 

If our metaphysical theory says that gold's recent swoon is because of renewed confidence in the Euro government then we should look for chart evidence telling us where we are in the cycle. To the left is a chart of gold priced in Euros and an RSI momentum oscillator below. In past cycles, when the RSI reading reached .20 the Euro price of gold bounced. Remember, it could do it in two ways or a combination of both: a decline in the Euro and an increase in the price of gold.

 

 

 

 

 

 

 

 

 

 

 

g yellowdollar top

 

 

 

 

 

 

 

 

 

 

 

 

 

Here is additional evidence that the gold story is really a Euro confidence issue. On the left is the U.S. Dollar Index and on the right the daily price of gold in NY priced in Dollars. The yellow box is the period of time following the peak in the value of the Dollar. If you read all those books that came out between 2008 and 2011 telling you that when the Dollar goes down, gold goes up, you have to be scratching your head. When confidence in the world order goes down gold goes up. The sick man of Europe was the Euro and as it approaches a reaction high and stock markets around the world breathe a sigh of relief and who needs gold? Forget about silver. If I am correct about the Euro topping then time wise, we should be close to a bounce in gold. Price wise, there could be a final "give up phase." In the last couple of weeks, market participants turned extremely negative on the metals. Usually this would imply that most of the selling is done.

 

 

 

 

 

 

 

 

 

uupFXEa

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a 60 day chart of FXE, an ETF that tracks the price of the Euro with a slow stochastic reading below. On the right is a similar chart of UUP, an ETF that tracks the U.S. Dollar Index. Both are from the Investools.com web site. One of my trading rules is that I don't want to own anything when the 60 day slow stochastic and especially its red moving average are at the top of their ranges. I won't sell anything when the oscillators are at the bottom of their ranges. UUP also looks like it formed a contracting triangle pattern and burst lower. Usually these forms preceded a reversal.

 

 

 

 

 

 

 

 

 

VIX top

 

 

 

 

 

The confidence story in the U.S. is reflected in the stock market and the VIX closing at a multi year low. You can google S&P 500 VIX to get its exact formulation. Basically, it goes down when traders expect the stock market to keep advancing and it rises when stocks go through a rough patch. Going into this weekend the investing world sees nothing but blue skies. Stock market participants of all kinds are up to their necks in shares with record low levels of cash in their accounts.

 

 

 

 

 

 

 

 

 

 

 

NYAqSPXq

 

 

 

 

 

 

 

 

 

 

 

 

 

Two more charts from Investools.com. On the left is a 60 day chart of the S&P 500 with a slow stochastic oscillator below at its peak reading. It could have just finished a contracting triangle type form for a burst and reversal. If so, the top should be in place within the next few days. On the right is a similar chart of the NYSE Composite. Note the oscillator levels. The current stock investing fad is Indexing or passive investing where you put your money into an index fund that follows the S&P 500 or another major stock market measurement. During my investing life time of multiple decades, every fad led to a concentration of money in a particular group of equities then an unwinding process. None of the unwinds were pleasant. I do not give advice. I write this web site to help myself sort out things and plan for the next two weeks. I see extreme complacency, patterns looking short term toppy, oscillators at their peak readings and huge pools of wealth concentrated in a small group of major stocks. After past declines I told myself that if I saw these things again I would short the market and I did.

 

 

 

 

 

 

 

 

 

third top

 

Is this "the big one" such as a 1987 style crash? There is a pattern argument that says that the advance from the 2016 lows should take the form of five waves, three of them up punctuated by two corrections. It could be that we are close to the top of the third portion. Wave four would take back some of the last year's gains and sour everyone on stocks then leg five would suck them back into stocks just in time for a major top.

More bearish analysts point to the March peak as the top of 3 and say that we are on the precipice of a major reversal. The future is unknowable. All one can do is look at the wind direction and clouds in the sky today and go from there.

 

 

 

 

 

 

 

 

 

 

 

 

mmm failapp fail

 

 

 

 

 

 

 

 

 

 

 

 

 

Two of the market's favorite issues did not make new highs with Friday's close. On the left is Apple. It looks like it needs more down side. On the right is an Investools.com chart of MMM. I was surprised to see it lagging.

 

 

 

 

 

 

 

 

 

sachs G

 

 

 

 

 

 

Goldman Sachs, the most heavily weighted stock in the Dow Jones Industrial Average is also lagging and looks like it is correcting its first sell off prior to more down side action.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

tlt needle

 

TLT tracks longer dated U.S. Treasury Bonds. The world is worried that Central Banks are ending their big purchases of publicly traded debt. You often hear them say, "Don't fight the Fed." The Fed and other Central banks were the major buyers of government, agency and in some cases mortgage and private debt. "Shrinking the balance sheet" means that they won't be buying this stuff anymore. Is there really a market for U.S. 30 year bonds that only pay 2.92% per annum? No one knows! Janet Yellen's testimony last week was dovish and some inflation numbers were released that showed little pickup. In the last month the bond market was heavily sold so a bounce is due. Still, when the biggest customers for debt world wide go on holiday, do you want to own this stuff? Short term gyrations in the stock market could support bonds for now but smart money will be selling into it.

 

 

 

 

 

 

 

 

 

 

DBA yes

 

 

 

 

Time to talk my portfolio again.

Agricultural commodities are out of favor or they were until the crop report came out a couple of weeks ago. To the right is an Investools.com chart of DBA, and ETF that tracks a basket of commodities and I own it. The pattern between the lines looks like one of the "triangle, burst up then reversal" types. If I see it happen I will be a seller when prices move above the previous high. If we head lower instead I will look to increase my long position.

 

 

 

 

 

 

 

 

 

 

 

 

tesla scam

 

 

 

 

 

The last time I include Tesla I said it was possibly the best short sale out there and included a quote from PT Barnum.. I don't short $400 stocks but I wish I did. As his stock was headed lower Mr. Musk held a news conference talking about a mission into space. I that scam artist type behavior or what? Your tax dollars at work ladies and gentlemen. The quote again from Barnum - "Every crowd has a silver lining."

 

 

 

 

 

 

Summary - The Euro pattern has the form of a bear market rally that is close to ending. Much of the world's confidence in stocks and disdain for gold follows from the Euro's resurgence. Investors in our stock market are supremely confident of higher prices. My sense is that something is about to change. I don't know what the catalyst or "story" behind it will be. Have a great vacation if you are going away for the next two weeks but keep your cell phone handy with your "watch list" updating every minute. Relax if you can.

Best of Luck,

DBE