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 May 13th, 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.

 

Before the last update I entered a long position on gold mining shares, hoping for a bounce in gold. We got one and I exited my trades last week. I sold my coffee and corn two weeks ago and got back into coffee this week. I still have sugar futures. Stocks had a persistent rally but by the end of last week I shorted them. Here is what I am watching this week.

 

d crude dayd crude

 

 

 

 

 

 

 

 

 

 

 

 

 

The chart on the left is a weekly chart of U.S. Crude Oil. The right side graph is a daily chart of crude. The long term target was $70 and above. We got there last week. Strong demand around the world plus worry about renewed sanctions on Iran are the excuse for buying. Cocoa is a commodity that is nice to have but not a necessity. We all use energy. When there is worry about a future shortage, users take no chances and buy supplies into the future. Producers and dealers who lock in prices for future production have record short futures positions. These are put on so that they can deliver physical against our current high prices on oil coming out of the ground next year even if the price at that time is lower. If you look at the array of crude oil futures prices you can see that crude is "backward dated." Near by futures prices are higher than ones for delivery in later months. Oil futures for delivery in January of 2019 closed the week at $68.26. June 2019 closed at $65.33. Last year, producers were hoping for prices above $50. $65 looks like a gift! The liquid market in futures, forward contracts and options allows high cost production to stay on line for years even in prices fall. This is a recipe for a future supply glut. Are we close to the tipping point?

 

 

 

 

 

 

 

 

 

d xopd xle

 

 

 

 

 

 

 

 

 

 

 

 

 

XLE and XOP are two popular ETFs that focus on energy and oil producers. Both are rallying in response to higher prices. The energy complex was greatly out of favor last year with most portfolios under weighted in the sector. The argument against oil is that there is a record amount of petroleum product in the world. Potential shortages are man made. If there is a revolt in Venezuela, production could quickly be restored. If Iran agrees to terms with the U.S., sanctions could be lifted. In the mean time, as noted above, current high prices allow for financing of even more exploration and production of higher cost oil.

 

 

 

 

 

 

 

 

 

d xomd bp

 

 

 

 

 

 

 

 

 

 

 

 

 

Despite current high prices, major producers like BP and Exxon Mobile are below previous highs. Both stocks pay great dividends. The weeks ahead should be interesting.

 

 

 

 

 

 

 

 

 

d djavd nya

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a daily chart of the NYSE Composite which includes all stocks traded in NY and on the right the Dow Jones Industrial Average made up of 30 of the biggest companies. Both graphs show a market trading within the boundaries of a quick decline that happened earlier this year. Energy and tech stocks boosted both charts last week. If you are bullish you say that stocks are consolidating after a big up move that started the night of the election in 2016. If you are a bear you note that despite record earnings the market cannot get above its January highs.

 

 

 

 

 

 

 

 

 

d rut

 

 

 

Small capitalization companies are doing better than their big brothers. The Russell 2000 is flirting with its previous peak. Pundits say that most of these companies make their money inside the U.S. and will not be hurt as much by trade wars and currency moves. My experience is that when stocks go up, they go up and when they turn down, every sector takes a hit. There might be some relative performance between big and small but in the end, the tide goes in and out with everything.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

xlk d

 

 

 

 

 

 

Apple hit new highs last week and some other technology companies did well but most remain below their tops. XLK, the popular technology ETF shows the result. A failure at this point will have chart types worried about a topping formation.

 

 

 

 

 

 

 

 

 

 

 

 

 

xli dxlb b

 

 

 

 

 

 

 

 

 

 

xlp dxly d

 

 

 

 

 

 

 

 

 

 

 

 

 

Other major sectors of the stock market look more like the pattern in the NYSE or Dow Jones Industrial Average as shown by these charts of SPDR ETFs. The Consumer Staples SPDR XLP is greatly out of favor. One of the services to which I subscribe, Sentimentrader.com, says that sentiment on it is at a bearish extreme and at a point where it snapped back in the past. My guess is that when interest rates were declining, institutions bought stocks included in XLP for their rich dividends. Now that they can lock in 3% in a ten year T Note they are getting out of these stocks and into fixed income.

 

 

 

 

 

 

 

 

 

SPX stochsas

 

 

 

This is a daily chart of the S&P 500 and a slow stochastic oscillator from the Barchart.com web site. Last time I noted that in choppy markets one could use momentum oscillators to buy and sell. As of Friday, the slow stochastic oscillator was high enough for me to sell. Note the left hand side of the chart. In January it stayed at the top of its range while stocks pushed higher. Selling the high or buying the low on the oscillator does not always work!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

pee downpee up

 

 

 

 

 

 

 

 

 

 

 

 

 

Warning: Longer term predictions are hazardous to your wallet!

Above are two ways to see the current pattern. Bullish chart watchers see the left side graph. They think the market is consolidating in a contracting triangle for a final manic burst higher into late 2018 and early 2019. The text book form calls for a short term top near current levels followed by some kind of news generated mini-panic that brings prices down toward the lower trend line. After that they see stocks taking off to new highs. On the right is the pattern that I prefer. Under this scenario the market continues to trade sideways into early summer then drops below the trading range. Analysts turn bearish with doom and gloom dominating the financial media. After hitting lows below February's decline we see an August bounce that turns into a wave of buying. What about the end of the bull market? Yes, it is possible that things are going to go to hell in a hand basket. The late July and early August time periods will be important. If we are drifting lower into early August with prices holding above 23,000 I will look for a good buying point.

 

 

 

 

 

 

 

 

 

gold flatEuro b

 

 

 

 

 

 

 

 

 

 

 

 

 

Lately gold is following the price of the Euro against the U.S. Dollar. Above are two graphs from the Barchart.com web site. On the left is a Euro chart going back to last fall. On the right is gold over the last month. I sold my gold position when it hit $1,320. At that point one could make the case that gold was finishing an up, down, up correction in a down market. I hope there is more up side but a profit is a profit. The Euro bounced a bit against the Dollar but a sell off with a nearly vertical slope is usually followed by a bounce then another sell off that is less severe in order to form a bottom. Gold could make the same type of pattern.

 

 

 

 

 

 

 

 

 

doll ddoll b

 

 

 

 

 

 

 

 

 

 

 

 

 

During the first few months of this year traders put on record positions shorting the U.S. Dollar against the Euro and other currencies. You have to ask yourself why they did this. Interest rates in the U.S. were going up relative to other currency blocks and the economy is doing very well. CFTC data shows that they still have big short positions despite the Dollar rally. The Buck is "over bought" on a technical basis which makes it vulnerable to a pull back or consolidation. With so many shorts in the market it is unlikely to sell off much. Short sellers will be looking for a point to cover. Even if it is just a rally in a down market (left side chart), there should be another follow-on move to the upside. I prefer the right side chart that says the Dollar might pull back from time to time but is headed much higher. This will be a big problem all over the world. There are billions in Dollar denominated loans that were taken out by foreign entities. As the Dollar goes higher they have to earn more and more in their currencies to pay Dollar based interest and principal.

 

 

 

 

 

 

 

 

 

de g daydbe g adj

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a chart of gold that subtracts the influence of the Dollar's movements. The price has been in a tight range. Most of the volatility that we have been seeing is caused by currency fluctuations. On the right is the daily chart of gold priced in Dollars. I am still looking for higher prices following the completion of an "M" type pattern. My current thinking is that there could be one more sell off into this summer before the "M" finishes.

 

 

 

 

 

 

 

 

 

uax

 

 

 

I trade in and out of gold mining stocks using NUGT, a leveraged ETF. The kind of pattern that is forming usually leads to an outsized move in one direction or the other when it breaks out of its trend line range. Putting on a big position in one direction or the other can make you the big bucks or bankrupt you. My experience is that it does the opposite of what most rational thought would tell you it is going to do. If you have to trade this sector, reduce your positions so you don't wake up to find a major move against you that you can't mention to your spouse.

 

 

 

 

 

 

 

 

 

 

 

 

long silver

 

 

 

 

Which way will it break? There will be resting orders to buy or sell on either side if the trend lines that will likely lead to a big move. Last month, CFTC data showed big short positions by speculators. They are usually wrong. They reduced their shorts a bit over the last couple of weeks. As with gold mining stocks above, betting on this market can make or break you. I give no opinion on direction.

 

 

 

 

 

 

 

 

 

 

 

 

 

Platinumpd and dow

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a chart of Platinum from the Barchart.com web site. The right side graph shows the daily closing price of palladium along with the stock market. The correlation between our stock market and palladium is interesting. Palladium users are very much concerned about a physical shortage due to lack of Russian sales. Why would it be moving in concert with the stock market? According to Sentimentrader.com sentiment on Platinum is near bearish extremes. If you want to start nibbling at a commodity that others think is going nowhere then Platinum is a candidate.

 

 

 

 

 

 

 

 

 

tens and thirties

 

 

 

According to CFTC data, speculators have large short positions on 10 Year Treasury Note Futures. They are convinced that interest rates are headed higher and placed large bets. Usually this group of traders places large bets near the end of a trend. The implication is that rates may stall or even fall back a bit from current levels. Rates hit their highs in late April. If they pull back a bit more the move could be exaggerated by traders exiting short positions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CornCocoa t

 

 

 

 

 

 

 

 

 

 

 

 

 

My bias is toward higher prices in agricultural things due to global cooling. Both of these charts are from the Barchart.com web site. I got out of corn and cocoa because traders turned extremely bullish on both. I am waiting for pull backs before I re-enter. It could take months for them to retreat to levels where I want to buy again.

 

 

 

 

 

 

 

 

 

splendaJava

 

 

 

 

 

 

 

 

 

 

 

 

 

I sold my coffee position shortly after the last update when July Coffee Futures got to $1.25 per pound. I bought September Futures last week when coffee pulled back. It is winter in the southern hemisphere. If my cold climate theory works we could have a frost in elevated coffee growing areas. Even the threat of a frost will send prices higher. There is no reason for sugar to go higher but "the trade," that is, users and dealers who buy it for end users are buying large futures positions. In past cycles this type of buying action correlated with bottoms. I bought some also.

 

Strategy for the next two weeks - Oil related things will be the most exciting to trade. It could move higher on international tensions and sanctions or perhaps even a war! At the same time, there is record selling of oil futures as producers and potential producers lock in current high prices and profitability on oil fields around the world. The same thing happened in the late 80s with gold. It set up a scenario where gold prices declined and many mines were operating unprofitably relative to current market prices but they were delivering metal against their previously sold positions. This allowed them to keep producing metal and adding to the current unwanted supply. Oil is setting up for the same cycle. Picking the top is impossible. Prices are at my previously stated chart goal and oil is constantly mentioned in the financial press - something that happens near tops or bottoms. I took a small short position at the end of the week. I continue using momentum oscillators as a guide to trade stocks. Given the position of the slow stochastic oscillator on the S&P 500 I bought (SPXS, a leveraged ETF betting on the down side of the S&P 500). I am not looking for "The Big One," just enough of a sell off to make a few bucks. I am in "wait and see" mode on gold. I don't have a strong theory for up or down for the next 10 trading sessions. Both mining stocks and silver look like markets where you can lose a lot of money quickly if your coin flip is inaccurate.

 

Best of luck,

DBE