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 November 3rd, 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.

 

Two weeks ago I was looking for lower prices in the coming week and a chance to buy a short term bounce. I was premature. The low came the next week along with the expected rebound. Below are some longer term scenarios along with immediate implications of recent patterns. Longer term predictions in the stock market are similar to weather forecasts for next month. Shorter term predictions are more likely to play out. Longer term scenarios have a lesser chance of being valid.

 

nya downnya up

 

 

 

 

 

 

 

 

 

 

 

 

 

Chart analysts are watching two potential patterns. The left side chart of the NYSE Composite sees the market in a simple a,b,c correction that already ended or will finish with some kind of follow on sell off a moth or two from now. The right hand graph is the bearish interpretation that sees the stock market in the early stages of a larger sell off. Over the last couple of weeks, traders bought lots of put options relative to calls and piled into leveraged inverse ETFs, making big bets on the market continuing its sell off. In past cycles these guys were wrong. Notice that on the right side chart I drew in a series of back and forth moves preceding the next serious decline. Given the bearish sentiment currently in the market we could trade in such a sideways pattern into January before the next serious decline.

 

 

 

 

 

 

 

 

 

p irreg

 

 

Unlike the NYSE Composite, some of the other major averages surpassed their January peaks before selling off. Bears see the "b" point as part of an irregular top form. In this case it is down from here. Most stocks made their highs in January. A handful of FANG stocks pushed the S&P 500 to the "b" point while most of the stock market lagged.

Bulls will see the a,b,c pattern forming as a finished correction. Point "b" exceeded the January top by the width of the yellow box. The "c" point of a corrective form should take out the lows of "a" by a similar amount. After that it is up and away.

 

 

 

 

 

 

 

 

 

 

 

 

 

5 r

 

 

 

Part of the fun of the stock market is that you can pick and choose the index you follow and come to different conclusions based on the measurement you track. Last summer the Russell 2000 (smaller companies) traced out a contracting triangle form which usually leads to a final rally and reversal. Reality followed art and the R 2000 fell in a five wave form. Even if it is the first leg of a larger correction in an up market, one would expect some serious selling to follow a relief rally as shown on the chart.

 

 

 

 

 

 

 

 

 

 

 

 

 

spx5

 

 

This chart is from the Barchart.com web site, an excellent place to get free charts.

This is a picture of last week's rally in the S&P 500. Note that it made five waves to the up side. Even if the market is making an upward correction before another sell off, a "five up" should be only part of the upward correction. Following a pull back there should be at least one more five up. As noted above, I suspect that the form will be more complicated, making a couple of swings back and forth possibly into early next year, disappointing both bull and bear for a couple of months.

 

 

 

 

 

 

 

 

 

 

 

 

 

jnkvix no prob

 

 

 

 

 

 

 

 

 

 

 

 

 

The recent sell off was severe in terms of points of decline in such a short time yet the VIX "fear gauge" did not hit the extremes seen in January. On the right is JNK, an ETF that tracks junk bonds. In previous mini-panics, holders of low grade debt looked at the stock market and took the decline as an early warning that the economy was about to turn down causing issuers of junk bonds to possibly default on payments. The sold heavily in line with the stock market panic. I put yellow ovals at these past points. We didn't see similar action this time around. JNK declined in line with the rest of the bond market as interest rates rose. Some analyst see this as evidence that the stock market is undergoing a simple "technical" correction because prices of some high tech fliers got out of hand. Bearish analysts say that we are not at a "bottom" because a major low is accompanied by panic in the Junk Bond market and wee didn't see it this time around.

 

 

 

 

 

 

 

 

 

goog blameamazon blame

 

 

 

 

 

 

 

 

 

 

apple blameface blame

 

 

 

 

 

 

 

 

 

 

 

 

 

A few months ago it was obvious that a group of favorites were moving the major averages and leaving most other issues behind. Now everyone is talking about it. When the last horses pulling the cart stumble this is what happens. I suspect that Apple has one more charge higher and will put in that top as the upward correction in stocks nears its completion.

 

 

 

 

 

 

 

 

 

blame catblame 3m

 

 

 

 

 

 

 

 

 

 

 

 

 

Caterpillar and 3M cracked before the high flying tech stocks rolled over. 3M in particular is a bell weather for world wide consumption of manufactured products. When it is trending down it is not a good sign for the rest of the market. If we get a rally phase and it fails to make new highs over the next 8 weeks then watch out below.

 

 

 

 

 

 

 

 

 

gs dog

 

 

 

 

 

 

Goldman Sachs is the big financial stock that sets the tone for the sector. Last week it bounced off of support. Analysts keep telling us that financial stocks will do better with higher interest rates. So far, it has not made a difference.

 

 

 

 

 

 

 

 

 

 

 

 

 

dow adj d

 

 

 

This is a daily chart of the Dow Jones Industrials with the percentage gain or loss in the U.S. Dollar Index added or subtracted to the number every day. Foreign wealth gets the benefit of our market movement plus or minus the gain and loss of the Dollar relative to their native currency. Stocks here in the U.S. can decline but if the Dollar is rising it can negate the loss. So far, the sell off came back to an up trending channel line. When it breaks this line you could see wealth from overseas accelerate their selling.

 

 

 

 

 

 

 

 

 

 

 

 

 

dollar win

 

 

Analysts are saying that if the Republicans maintain control of the House of Representatives then the Dollar and stocks will rally. Sentiment toward the Dollar is already near the high end of its historical range and at levels where it topped out in past cycles. My dream trade would be a pull back in the Dollar Monday and Tuesday because of polls that suggests the Democrats will win then a rally after Tuesday that fails because everyone already bought. My drawings imply a pull back toward 94 before the Dollar rally resumes.

 

 

 

 

 

 

 

 

 

 

 

 

 

dollar rod gold

 

 

 

Pundits say that gold is inversely correlated to the U.S. Dollar. When the Dollar, the measuring rod for the value of gold, increases in value, the Dollar denominated price of gold goes down because now it takes fewer Dollars to equal the same amount of gold. This chart adds or subtracts the percentage change in the Dollar Index to gold on a daily basis so that you can see the absolute performance of the metal without the influence of the Dollar. Below in red is a simple RSI oscillator. Peaks and lows in the oscillator were decent spots to buy and sell. The oscillator got toward the higher end of its range but short of previous gold tops so there is room, but not much.

 

 

 

 

 

 

 

 

 

 

 

au one moregold good

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold fans are thinking that if the Democrats win the House of Representatives, the Dollar will hit the skids and gold will rally. Speculative trend following funds are heavily short the metals so lots of short covering could drive prices higher. The chart on the left shows a potential pattern that could be unfolding. On the right is close up of the move down to point "c" on the left side chart. If this were a stock and one was trying to guess the next move based on common chart patterns then a final slide back toward the summer lows would look best to complete the down phase.

 

 

 

 

 

 

 

 

 

nugt bnugt a

 

 

 

 

 

 

 

 

 

 

 

 

 

NUGT is a leveraged ETF based on gold and silver mining stocks. It is not for the feint heart, widows or orphans. A small move in gold and the mining stocks moves the ETF a lot. The chart to the left looks like it completed a classic contracting triangle form leading to a final five wave decline that should end with a big reversal (if it follows the art in the text book). On the right is a close up of the trading action following the "e" point on the left side graph. If it is making a classic five waves down then it needs one more sell off to fit the form. Art is voting in favor of a coming decline in bullion and the stocks.

 

 

 

 

 

 

 

 

 

ag derange

 

 

 

I expect silver to follow gold in a muted fashion. Old time commodity traders used to say that the last phase of a down market in an item is neglect, that is, no one cares about it any more. This is the opposite of the spring of 2011. I remember being in a coin shop and seeing guys plunk down thousands in cash for silver coins and walking out with the same look on their faces as you see on the scratch ticket winners who make you wait in line while they cash in their winnings and decide on which new tickets to buy. It was the "I have a secret the rest of the world doesn't have!" face as they packed up their metal that they purchased at $37 an ounce.

 

 

 

 

 

 

 

 

 

 

 

pa

 

 

 

 

 

There is no money in trying to predict palladium prices. With worries about future supply it is in a world of its own. I do note that the decline from around $1,140 to $1,060 looked like a five wave affair. That implies that after a correction there will be another sell off.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

y and s

 

 

 

This chart shows the interest rate on US 30 year and 10 year debt. Below in green is the spread between the two rates which until recently was flattening out. It increased slightly over the last month but is still at just 25 basis points. That is not much reward for increasing your duration by 20 years. Speculative funds are heavily invested in strategies that make money when rates move higher and polls of the public show that the average guy is convinced that interest rates are going higher. Usually when a market reaches this kind of consensus it is near a turning point!

 

 

 

 

 

 

 

 

 

 

 

 

 

xomcrude

 

 

 

 

 

 

 

 

 

 

 

 

 

As expected, crude oil headed lower. In July and August there was unanimous belief that it was going to at least $80 and more likely $100 a barrel. In the mean time, the upward pattern looked complete and ripe for a reversal. Oil is now greatly out of favor. Companies that deal in all aspects of the energy sector sold off recently since most things in the energy world make money on a percentage basis related to the price of oil. On the right is a chart of Exxon Mobile, the monster of the energy world. Chart guys are wondering if is making a contracting triangle for one final big pop. If it reverses off of the lower trend line we will take note. Oil is technically "over sold" and sometimes responds to stronger equity prices. If we get more strength in stocks after the election then watch for oil to have a relief rally. Analyst will blame sanctions on Iran.

 

 

 

 

 

 

 

 

 

soyjava

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a long term graph of coffee. I was increasingly bullish on coffee late in the summer as it fell toward $1.00 a pound and below. That price level was a low in previous markets, below the cost of production and "commercials," dealers and others involved in the coffee trade were loading up on coffee futures while trend following speculative funds were shorting the stuff near historical lows. Now it is trading above $1.20 as shorts were forced to cover. The easy money has been made for now. I would like to see a pull back so I can get back in below $1.10 again. Remember, the climate is getting cooler and coffee bushes that grow in the mountains are at greater risk of freezing. A similar thing is happening with soy beans. The CFTC commitment of traders reports are showing that commercials are loading up on soy bean futures contracts at these levels. You can look at this long term chart and note that beans traded at lower prices 12 years ago but a lot has happened in the last dozen years. Millions of people have gone from poverty to the middle class in Asia and are now consumers of meat that uses bean meal as a high grade feed and thousands of products that use soy oil. My theory is that in the next decade the big money is going to be made in food related commodities.

Strategy for the next two weeks: I am going to concentrate on the stock market because the patterns are the clearest. The move off last week's low is a five waves up pattern. This implies a correction followed by another five up. The election will be the news around which this series of moves gyrates. The kinds of traders who usually lose are betting on the down side so buying short term "over sold" spots using slow stochastic oscillators on a five day chart or low RSI readings would be the thing to do. My dream trades are that stocks sell off into the election while gold and silver do the opposite as anxiety rules. Then, on Wednesday or Thursday things reverse. This should be an exciting two weeks of trading.

Best of luck,

DBE