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 September 29th, 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.


Charts of the week!


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Headline in Drudge this morning - "Upward march of oil prices shows few signs of stopping ..." On the left is a weekly chart of domestic crude prices. Brent Crude which is the benchmark for the rest of the world's oil trades $9 higher than our domestic prices. There are lots of reasons for the energy complex to move higher. International economic growth means more energy demand. Libya and Venezuela which used to be big producers have problems and the U.S. is pressuring other countries to avoid oil from Iran. When the premium for non-domestic crude rises it pays to ship the stuff overseas so even if domestic supplies are plentiful we are still somewhat linked to international prices. With Friday's surge we are close to highs from earlier this year. On the right is a one month chart from the web site where you can get all kinds of charts for free. Note the red trend lines around the recent contracting pattern. According to charting text books this kind of consolidation, following a good move, precedes a final burst in the previous direction then a reversal. We got the burst on Friday. Let's see if reality follows art and crude prices decline next week.










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The spurt in oil put some life into other commodities that could not get off of the floor lately. Silver had a nice pop. Bulls on the metal will see the recent lows as a completed five wave decline with Friday's rally being the start of something big. Gold seemed to have a big day with December gold futures rallying $8.80 but on the daily chart you can see that prices are still mired in the same range in which they have been trading since August 16th. Remember, speculators have record short bets against silver and gold and some other commodities. The initial rally off of the August lows traveled a bit more than $50. It is possible to see that rebound as the first leg of an upward correction with the pull back into last week's lows the second leg of the pattern. If we get another rally phase that equals the first leg up then the target price range will be between $1,230 and $1,240.










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Optimists on the metal are looking for something like the left side chart where a sideways consolidation will lead to a break out that takes prices above the $1,400 level. Pessimists see the consolidation following the 2013 low as preparation for lower prices. There is no magic formula that easily predicts the next major move.










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A simple RSI momentum oscillator on the weekly closing price in NY hints that we are closer to a low than a high!

On the chart you can see the history of the oscillator and subsequent prices. If I were running a commodity fund and had big short positions I would be covering my shorts at this point.














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It is interesting to watch the daily price of gold in Euros because some of the ups and downs in the metal are in response to the Dollar getting stronger or weaker. If the Dollar goes up in value against other currencies and "things" one would expect gold, priced in Dollars to go down. When it is going down in other currencies such as the Euro, you know that it is really taking a hit. A move above the recent consolidation range that tops at 1,040 will give a more positive look to the market.














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Last time I wrote that the direction of the Dollar was key for a number of commodities because they appeared to be trading opposite the Dollar. When it sold off toward point "a" on the chart and gold did not rally it was disappointing. As the Dollar rallied last week, gold and other commodities backed off again then on Friday they ignored additional Dollar strength and followed Oil higher.

The two dashed red lines are the same length. The first move down from point "5" is often followed by a correction then another sell off of at least the same amplitude. The low at point "a" failed to reach the targeted low. This leads me to believe that the correction is going to be more complicated and take the form of something like the green and red lines. Look for these moves to give a head wind or tail wind to metals and other commodities that usually move opposite the Dollar.










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Palladium continued its rally and platinum, one of the commodities thought to be dead, showed a bit of life. If we get a major short covering rally in gold and silver I would expect platinum to follow.
















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TLT is an ETF that tracks longer dated U.S. Treasury Bonds. Thirty year bonds are still only paying around 3.2% per annum. Note the series of lows in the price (highs in the rate paid) over the last couple of years. Old timers like to say that double bottoms are meant to hold. Triple bottoms are meant to be broken. The multiple touches near the low end are a hint that eventually bond prices will fall below the current range.

On a shorter term basis, speculators are loaded up with shorts on T bond futures and advisors see the same series of lows and are looking for a major break lower (rates higher). This means that we are likely going to have a short covering rally before another charge to the down side.
















This is a graph of the S&P 500 from the web site.

Two weeks ago my strategy was to be short stocks. I used SPXS, an ETF that goes up when the S&P 500 goes down. I am still holding it. Prices moved a bit lower in fits and starts but there was not a lot of net movement., a web site to which I subscribe reports that small options traders initiated a relatively large number of bullish strategies over the last few weeks. These guys tend to be overly optimistic near market peaks.













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Close to 29% of the S&P 500's gain this year is from Apple and Amazon. Over the last month they declined from peak prices then consolidated. AlphaBet (Google) and Facebook are also off of their highs. What doesn't go up ends up going down. There is a lot of institutional money stashed in these stocks. If they break recent lows it should set off a few strong days of selling.










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Their price pattern is reflected in the NASDAQ 100 which also climbed back toward its previous peak last week. The entire wedge type form between the red dashed lines is a pattern that often leads to a set back.
















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On the left is the Russell 2000 index of small cap stocks. It made a pattern that is similar to Oil's recent contracting triangle, burst higher then reversed. The text book says that lower prices should follow. On the right is the NYSE Composite. This broader market measurement is still well below its January peak with an unusual number of 52 week lows among its issues over the last month. This kind of split between a small group of high flyers and other groups that are declining is not indicative of a healthy market.
























Goldman Sachs and 3M are examples of two widely held stocks in different sectors with bad looking charts. While "the market" seems to be going up, the number of stocks moving with some of the major averages is dwindling.










xlv up




The other group aside from some tech stocks that is a magnet for money is the health care sector. XLV is an ETF that includes many of the big names in drugs and health care type companies. Money is being concentrated in this sector so watch the charts of companies like Pfizer. Whenever I see dollars flowing into one or two industry groups while the rest of the market stalls it does not usually end well.















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On the left is a chart of XHB, the home builders SPDR. On the right is a five year graph of lumber futures prices from the web site. I thought that due to tariffs, lumber prices were going up! The decline in both these markets seems at odds with the bullish sentiment among stock pickers.










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Strategy for the next two weeks:

Stocks look risky. The short term patterns on the high flyers where money is concentrated have the potential to form tops. I am staying short the S&P 500. Gold and silver got a good pop on Friday and the shorts have to be nervous. My worry is that some of the rally was inspired by the burst up in Crude Oil and the triangle form highlighted in the first set of charts hints that this could be an ending move. If oil pulls back next week, watch the action in the metals to see if they hold up. With so many shorts in the market and the weekly RSI still so low I have to give metals the benefit of the doubt. I still like my coffee. Friday's action was good. As with metals we will have to see if it holds up even if Oil pulls back.



Best of luck,