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 April 22nd, 2017
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.
This week I am using a lot of charts from the Investools.com web site. I am more interested in short term trading than long term investing. These charts capture some of the intra-day patterns to which I attribute meaning even if there is none. The charts do not show the intraday action on Friday, just the close.
My theory was that the market is forming some kind of complicated correction with multiple directional changes before another pop higher. After a surge to new highs I expect a larger sell off. As of Friday's market a pattern emerged that could mean the pull back is ending. To the right is the S&P 500. With a quick sell off toward the lower red line the market would complete a contracting pennant or contracting triangle formation. This would imply a quick and robust surge to new highs over the next week. After that one would expect a larger decline that lasts a few months.
The ideal pattern for the Dow Jones Industrial Average would look something like this. The pull back from new highs would have a length of around 1,000 points. That should be enough to turn the street bearish and convince individual investors that the Trump bump is over for good.
One of the leading industry groups for the rally was the financial sector. On the left is XLF, the SPDR for financials. On the right is Goldman Sachs, the financial stock in the Dow Jones Industrial Average with the largest weighting. Both XLF and GS look close to finishing an initial five wave decline. If the French elections scare markets then both stocks could hit their lows early next week. The implication of a five wave decline is that a rebound should not make new highs. Even if the broader averages surge to new peaks the financials should fall short. The bounce would be large enough to be a tradeable event.
The NYSE Composite is broader based than the S&P 500 or Dow Jones Industrial Average and has more of a downward tilt. The back and forth form is similar. If my chart mysticism guess is correct then an early week sell off that takes the NYSE down to or slightly below the lower red line will be a buy.
This is what the S&P 500 will do if it conforms to my fantasy trade. We would see early May euphoria followed by weeping and gnashing of teeth.
So what could go wrong? It sounds like the patterns are set! Well they were set a few years ago when oil made a similar formation. I was expecting it to pop above the trading range, setting up a great opportunity to sell short . Instead it rallied toward the upper trend line then collapsed! On the right is the S&P 500 with lines drawn in showing the same pattern. A move below 2328 will tilt the odds toward an immediate market decline.
Sometimes the pattern of a popular individual stock seems to capture the spirit of the whole market. U.S. Steel looks like it completed three out of five waves up. My guess is that the fourth wave, a corrective one, will be complicated as shown by the red lines. August would fit the pattern for an end to wave 4.
Last time I chose Corning as a stock making ideal patterns and mentioned the $25 to $26 area as support. A little sell off early next week would approach that range and the green up trend line. Support under that is in the $24 range.
Apple Computer is such a large part of major indices that you have to pay attention to it. On the left is a longer term chart with my scenario added to it. On the right is a close up look at the last couple of months and my wishful thinking.
There are three markets that are acting as the anti-stock market. They are generally thought of as "flight to safety" trades. The Japanese Yen is the first one. Above I wrote about the S&P 500 forming a contracting triangle formation for a final up move. Here is what it looked like in FXY, an ETF that tracks the Yen. There are many traders who are convinced that our stock market is about to crash. They move out of Dollars and into the Yen at the first sign of difficulty. The up move looks complete with an initial down move following.
Bonds are the second "flight to safety" haven. TLT is an ETF that tracks longer dated U.S. Treasuries. After election night bonds gapped lower. Traders were universally convinced that interest rates were headed higher. Lately as the stock market stalled they realized that their estimates of economic growth might be too high. These estimates are simply a function of stock market moves. On financial TV, when equities are up for a few days analysts are talking about robust growth. When they sell off the same guys are discussing the end of the Trump bump. If we get a short term pop in the stock market then a few month's sell off, the bond pattern should follow the lines.
Gold is the third flight to safety trade. Anticipation of a stock market collapse is a part of gold's attraction. I see the potential for a stock market correction into this summer but after that I am hoping for a final rally phase. Given that scenario I expect gold to trade in the opposite direction and to have a final sell off into late 2017 as stocks peak for the cycle. The longer term chart on the left shows a possible pattern matching this scenario. Keep in mind that projecting gold prices into December is foolish and highly speculative. No one knows the future. Short term, there is a chance that gold topped at $1,297 but I am hoping for one more pop. I see resistance in the $1,305 to $1,326 range. French elections have everyone excited. It will be interesting to see where gold is when electronic trading starts on Sunday night.
This is a chart of GLD, the Gold ETF from the Investools.com web site with a slow stochastic oscillator below. Note the level of the oscillator and particularly its red moving average. Over the last few years when it got to the top of its range there was not a lot of up side left in the price of the metal. It could be "different this time" but "different" is different because it usually does not happen.
Last week's Commitment of Traders report showed record speculative long positions and commercial short positions in silver. In the past this was a recipe for quick and nasty declines. I would not be surprised to see prices hit the 16s on some type of panic selling spree. On a trade below the "a" point on the chart I am going to be a buyer.
On the left is a chart of the daily closing price of gold in NY adjusted for changes in the value of the U.S. Dollar Index. It gives you an idea of how gold looks to non Dollar buyers. It is near the high of its range for the last five years. On the right is a chart of gold, priced in Euros with a simple RSI momentum oscillator below. The oscillator has been a great warning tool when at high or low extremes. It is just coming off some of its highest readings of the last seven years.
There is a lot of emotional energy going into the meaning of the French elections and the future of the Euro. The UK seems to be doing just fine after leaving the European Union. Estimates of economic growth in the UK were just raised. That will encourage other countries to consider withdrawal. On the left is the U.S. Dollar Index. Half the analysts I respect say that problems in the Euro zone and Japan will cause the Dollar to spike higher and that the move could start next week after the this weekend's French elections. The other half say that the Dollar topped earlier this year after our elections and will test support in the mid 90s before attempting another advance. There are dire predictions for the Euro if Le Pen wins. I am going to stay out of this one. Last month my shorter term Euro charts looked like the Euro could rally back to $1.13. Let's see what Sunday brings.
During the early Obama years the only thing keeping the economy going was the high price of oil. We had an exploration boom in the U.S. along with associated economic activity around the oil exploration, transportation and refining infrastructure. Our former President campaigned on higher hydrocarbon prices. He saw them as a way to force people into alternative energy, an industry from which he received large donations. He must have skipped economics 101 in college. Higher prices lead to increased supplies and innovation. I am watching two pattern paths for Crude Oil. The first is on the left, a weekly crude oil graph. It implies that oil prices are in a lengthy correction of their first move off of the 2016 lows with a pull back just below $40 a barrel likely. The chart on the right shows USO, an ETF that tracks crude prices. The lines show a more shallow type of correction where any pull back holds above $42. Under this scenario there will be some kind of energy shock that causes a short lived price spike sometime in the next 6 months. I am leaning more toward the left side chart. Lower oil prices are currently seen as a negative for the stock market. My favored scenario for stocks calls for a May to August sell off that would correspond to declining oil prices into this summer.
Time to "talk my book" again. You hear things like "they hire at the top and fire at the bottom." I think the same thing about global warming. Remember, in the early 1970s the same cultural set who now scream about global warming thought that a new ice age was starting and that famine would encompass the world by the 1990s. Drastic steps needed to be taken with them in charge. Now it is the same theme in the opposite direction. I am voting for global cooling and crop disruption. Buying stocks associated with agriculture is the only long term investing that I do. DBA is an ETF that tracks agricultural prices like corn and soy beans. Going into planting season in N. America the expectation is for bumper crops and lower prices. If you like buying em when everyone else is selling, now is the time.
Summary and strategy for the next couple of weeks - I am looking for a stock market sell off in May. My preferred scenario calls for one more new high in the major averages first. Gold and especially bonds should trade counter to stocks. Last time I mentioned that oscillators such as slow stochastic and RSI could be used for buy and sell points. That is because the character of the stock market was one with frequent back and forth moves without a major trend. If I am correct about things there will be larger directional moves. Instead of using a 10 or 20 day slow stochastic extreme to buy and sell, a 60 day might work better. I will be skeptical of any pop in gold and silver early next week. Remember the slow stochastic readings on gold shown above and the extreme in the COT reports on silver. You could see $1.50 disappear from silver in a few days.
Best of luck,
D B Edwards
Unneeded commentary: Are we sticking around too long?
I am with my mother on a Thursday night. She will be 97 in June, has congestive heart failure and is very fragile. “I am living too long.” She said. Her cognitive abilities are still strong but day to day physical life is a balancing act of pills and water. Just standing up causes her to be out of breath. One of my sisters recently took family leave to be by her side 24 hours a day in the closing days of her life. On weeks when I am not traveling I spend time with her to give my sister a break.
I understand what mom meant. Her day to day struggles to breath and move have reached the point where she would be happy to go to sleep one evening and pass quietly. On top of that she sees the sacrifice my sister is making to keep her at home along with the visiting nurses and government paid expenditures for her medications. My mother is a very practical and modest person who never over estimated where her personal star sat in the universe. She has a deep Christian faith and is not afraid of the next step.
My uncle passed two years ago at the age of 98. He was a brilliant lawyer with a photographic memory for history and literature who made a lot of money. He doubted that the world could survive without his opinions and wisdom. It got me thinking of the notion of “sticking around too long” in a couple of ways. The first was in the sense my mom meant. After taking care of my uncle and listening to the same stories week after week I came to the conclusion that once you hit 80 you just have to shut up. Even now, in my early 60s I find myself repeating things. Maybe I am already approaching the “shut up” point. From the emotional and economic perspective when do we shift from being a plus to a neutral then to a negative? Modern medicine allows us to live longer, but by doing so are we extending a loved one’s burden and sucking more money out of the economy so that we can watch a few more weeks of Jeopardy? It led me to think of the past in another sense.
Led Zepp and George Eastman
A couple of summers ago I went next door to talk to my neighbor about poison ivy that was invading our yards. He is a guy in his late 20s. He and a friend were drinking whiskey out of bottles and listening to Led Zepplin. Zep’s first hits were released in 1969, 48 years prior. This would be like me listening to songs from the late 1930s when I was the age of my neighbor.
One of my family members likes tattoos. At points in time under a temporary emotion he gets a permanent design imprinted on his body. In a few years he will feel entirely different about the world. The tattoos will remain.
Another neighbor had three young kids and put up an elaborate swing set and a sand box. The tots loved it for a few years but now they are playing soccer and lacrosse. The old equipment sits unused. He will probably get rid of it in a year or two at less cost than removing a tattoo.
Humans create things with lesser or greater fragility. When I was doing business in Central and South America I visited Mayan and Incan ruins. On a visit to Switzerland I walked through a granite church built in Roman times. The other side of fragility is durability and a longer residence time. Some things span hundreds of generations.
My mother was born before cars were common. Much of the country was not electrified and radios were not widely owned. She will pass in the era of wireless internet cell phones and Bluetooth.
Technology and permanence go hand in hand. I read about clay tablets or cones with ancient writing on them found in the Middle East. Most appear to be related to commerce and contracts. Papyrus scrolls followed and by the time of St. Augustine’s Confessions in the late 300s books of hand copied pages in ring binders were available. I looked up literacy in the Roman Empire and found that there is much debate on the topic. Most would agree that at least 10% of the population had some type of reading skills. Some argue for as high as 30% because of the number of inscriptions on public monuments. In St. Augustine’s day books were rare among the general population because of the cost of creating each handwritten copy and they were mostly read out loud. It was common for rich people to hire servants or have slaves who read while the illiterate boss listened. The fragility and cost of written materials made person to person communication an important part of life. Augustine was educated in classics, law and rhetoric. He excelled at public speaking. In a world where most had limited reading skills, an eloquent speaker communicating the position and wishes of the Empire was of great value. He made his living teaching these skills until shortly after his conversion then applied the same to the Church where he quickly advanced.
In Ecclesiastes 12:11 and 12 it says : The words of wise men are like goads, and masters of these collections are like well-driven nails: They are given by one Shepherd. But beyond this, my son, be warned: the writing of many books is endless, and excessive devotion to books is wearying to the body.” Even in Solomon’s time there were plenty of people who thought their wisdom was worth saving and peddling to others.
Johannase Gutenberg was the first to market with a printing press around 1440 and the world has not been the same. It is argued that one reason for the success of the Protestant Reformation is that by the time of Luther’s writings after the 1520s books could be printed by the thousands and were relatively inexpensive. Luther wrote the first “best sellers.” The more copies in circulation the harder it was for the Church to stamp out the new heresy.
Recently I was in Rochester NY accompanying one of my clients on a plant visit. We had a few hours and went to the George Eastman House. Eastman as in Eastman Kodak. Like Bill Gates of Microsoft fame, Eastman did not invent the chemistry of photography. He packaged it in an easy and relatively inexpensive way so that many more people could afford a visual record of themselves and their activities. We are surrounded by millions of digital images today. One hundred fifty years ago you had memories of your parents and other relatives but nothing concrete.
Along with digital images we have trillions of digital documents and access to hundreds of millions of books, articles and essays on every possible topic. Look at the evolution of the availability of music. Edison’s phonograph, patented in 1877 ushered in the era of portable music. Before that, you had to go somewhere to listen to it. After the performance it was gone. For a number of decades wax then vinyl records made sound as permanent as one’s care in storing them but they were expensive. As a teen, working for $1.25 an hour at an agricultural business I bought the sound track to Hair, the musical for $17 and change. My father couldn't’t believe that I would spend so many hours of hard labor so carelessly. Now, my wife downloads music from I Tunes for next to nothing.
When my uncle died I had a month to empty his and his late wife’s apartment. Going through their saved items was like walking through a museum. My uncle had hundreds of books on the second world war, civil war and revolutionary war history. He had thousands of classical music CDs and hundreds of vinyl and even wax records that he accumulated before CDs. He also had hundreds of videos of movies and educational courses. He had an expensive turn table for records and the best reel to reel tape recorder that you could buy when they were popular. He saved letters and programs to performances. He took a camera with him most of the time and saved thousands of hand mounted slides that document interests and places he traveled in his life. His “stuff” was a history of the evolution of storage technology as well as a record of his life.
Last year my wife and I moved to a house around 75 percent of the size of our previous place. We had to throw out thousands of pounds of stuff to be able to fit. I got rid of exercise equipment, old furniture and electronics. I had a good book collection. Those books were me, but out they went. As I got rid of them I felt something like a weight being taken off my shoulders. Without my past personal “things” surrounding me it left me with a feeling of being untethered and able to take on the new. It made me think about how the many things we save and have around us shape our trajectory into the future. Most of my “memories” are now digital, take next to no space and are very portable. I started thinking more about the digitally portable past we have hanging around us like a halo and the world a couple of hundred years ago where you had to learn things by word of mouth or watching someone. Having written references and instructions is handy. You no longer have to reinvent the wheel when considering a project. You can take the documented past and move forward on a platform of trial and error. But something is lost. When I got out of college I bought a VW bug. I read The Idiots Guide to Volkswagen Repair, bought some tools and did the tune up and brake work on the car myself. Things in a car were never the same as the manual predicted. The projects always required problem solving and adventure. It was a valuable, character shaping experience.
“It’s a hard world to get a break in
All the good things have been taken” – Roger Atkins and Carl D’Errico. Sung by The Animals. The first two lines of “It’s My Life” from October of 1965.
In ways, the preserved past competes with the present. Look at my neighbor listening to Led Zep. In endeavors of all kinds, not just artistic, the easily available past leaves a high bar to hurdle for new efforts to be meaningful. With years of music at our fingertips is it any wonder that new artists have to sell their creativity at bargain prices to be catch on? How many modern “Stairway to Heaven”s have you heard lately? In a sense, ignorance of the past is a friend of present efforts. In modern Christian literature there are authors addressing spiritual questions and buyers of their writings don’t know that the same issues were written about extensively by Catholic scholars 1,700 years ago.
Living with a huge halo from the past is a new experience for humanity and it has come about in the life span of my mother. Will it be fuel for advances or a discouraging factor for those who desire to do and create possessing abilities that fall short of the easily retrievable past? My guess is that it will be both. Having the past at our fingertips and in our ears will push the ambitious toward niches where they can compete with their peers and the past. Others will become discouraged and cynical. A greater danger is that others will use data mining to quickly retrieve historical numbers to produces graphs and studies that imply something about their knowledge of the future when the futures is unknowable.
Back to Mom.
My daughter and son in law are constantly taking pictures of our granddaughters. Their lives are being saved day by day. I have two cherished memories of my mother and these paragraphs are the only place they will be preserved. I was a toddler and with her in our back yard while she hung up clothes to dry. It was the late 1950s and like most women she was wearing a dress and leather shoes as she did house work. I heard a hissing noise then the loud cry of our tuxedo cat, Snoffy. We turned around at the same time to see a large black snake, wiggling around, held carefully in his mouth. It was one of the many “gifts’ he brought my mom, live presents for the mistress he loved. Mom disliked snakes and mice. She shrieked then took pity on the snake and got the cat to drop it.
Around the same year I was in the kitchen with her in the morning. My father had a Master’s degree from Harvard but no idea how to make money. He left on Monday morning and came home Friday night. He was a difficult person who was constantly critical and nasty to my mother and prone to hitting us with his belt. When his car pulled out of the driveway on Monday morning we all breathed a sigh of relief. During those years he left my mother with 2 dollars for the week in case we ran out of milk and bread. We were very poor with no modern heat, no phone, no TV and no toaster. That morning my mother put slices of bread in the oven under the broiler as a way to toast them. She got busy doing something for one of us kids. Smoke began to seep from the oven and when she smelled it she ran over and opened the door. At that point she began to sob uncontrollably. Even though I was not yet in school I understood that something deep was going on and it was more than just the toast.
Mom had trained as a nurse then joined the army during World War II. After the war she moved from Alabama to Boston and became a nurse- anesthetists. She shopped at nice dress stores and lived a good life. She met my dad who was five years younger and they married within a year and began having kids. Things went downhill as he was unable to provide a good life for her and us kids. When I was in third grade she went back to work as a nurse. Finances improved. We got electric heat, a phone and no longer had to burn wood to stay warm in the winter. It was her hours on the job that put me through college.
When I was ten I borrowed $67, got a Sears lawn mower and started my own neighborhood yard business. After paying back the money the first thing I bought was a four-slice toaster for mom. Sometimes the halo of the past is a spring board for reaching higher. Sometimes it competes with our ambitions and shows us up as less than we would like. Sometimes it just has to be loved and cherished.