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.
Please remember, the following is pure speculation based only on my experience and chart patterns. "Every sunken ship has a room full of charts."
David Bruce Edwards
October 10th 2024
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.
As usual, I will show pictures and graphs found on Zerohedge.com, Sentimentrader.com, which include the Seasonality charts and charts made on Barchart.com. I will also mention "cycle low timing bands" suggested by another market website to which I subscribe, Cyclesman.com.
Due to travel I am doing an early, abbreviated update with prices as of Thursday night. Please forgive the typos. I didn't get my usual editing time.
The big news events of the week were the continuing rescue and recovery from Hurricane Helene and now, Hurricane Milton. On the economic front, traders were still focused on jobs and inflation. Here were the headline grabbers.
On Friday the 4th, the Bureau of Labor Statistics reported that 254,000 jobs were added last month. ADP projected 143,000 from their real life data. The gain was larger than anyone predicted. The number was quickly dissected and it turns out that the report included a massive gain in government jobs (right) which most serious analysts suggested was not likely. Remember, the Fed just cut rates, claiming that it was time to worry about the labor market. Bonds hit the skids as expectations for future rate cuts fell. Non-government private sector jobs came in at 133,000, not far from ADP.
Earlier in the week the JOLTS report said that job openings rose again last month, mostly due to construction jobs despite construction not doing that well. The Hires and Quits data was more subdued (right). Analysts were quick to point out that the survey upon which the data is based has just a 30% response rate. What it presents is mostly an estimate.
The headline Consumer Price Index (left) came in a bit above 2% and in line with expectations. The Core CPI that excludes food and energy rose a bit to a rate of 3.31%, hotter than estimates. The questions about why the Fed cut or if they would continue to do so were immediate. Items like car insurance and medical costs continued to rise.
Food prices rose again! A basket of common foods that most consumer buy at the supermarket headed higher (bottom of left side chart). Overall, consumer prices have just kept going up at an accelerated rate since 2021 (right).
On the left is the August read on credit card debt. It actually shrank slightly. Economists have been wondering how much of a hole consumers would dig for themselves, especially since the average rate for that debt is above 20%. There were some other months when consumers pulled back on spending but it didn't last. Two months in a row will ruin the "consumer healthy" narrative. On the right is non-revolving debt, mostly auto loans and student loans. It continued to rise.
Initial jobless claim spiked to 258,000 thanks to Hurricane Helene, Chrysler and Dodge labor cutbacks and the same at Boeing. Normally, these might be thought of as short term factors but in the case of the hurricane losses, many of those jobs got washed away. Now with Milton, expect to see more joblessness and for the upper line on the continuing claims graph (right) to go even higher.
The reaction in the bond market to all the firmer data was strong. The left side graph updates the yield curve as of Oct. 10th. The red line is the latest. If you bought bonds on the rate cut news you are sitting on a big loss because interest rates rose across the curve with longer dated maturities rising the most. On the right is TLT, an ETF that tracks longer dated government bonds. The red oval marks the trading days around the rate cut and you can see what your bond portfolio did after that! Below is a slow stochastic oscillator and it is on its lows. Past trips to these levels were followed by rallies, even if they were temporary. The yield on a ten year is 4.088 and a thirty year, 4.381 as I type. At some point, traders are likely to think that locking in some return at these levels is not a bad strategy, especially if stocks begin to sell off. Foreign buyers did so today. They bought 80.5% of the 30 year Treasury Bond auction, a record amount.
Going into the last update the Dollar was falling on rate cut expectations here and rate increases in Japan. I warned that we were close to one of Cyclesman.com's 23 day trading cycles and possibly weekly and seasonal cycle lows. Rate cut expectations reversed both here and in Japan and with world-wide tensions running high, the Dollar jumped dramatically higher, making the frequent articles about its coming crash look silly. On the right is last month's action. My guess is that we are close to a short term peak.
Last time, I pointed to the high RSI reading on a weekly closing price of gold (right) and wrote that I never had luck buying with a high weekly RSI. Sure enough, the metal sold off a bit as the Dollar rose and war didn't break out between Iran and Israel. The weekly RSI is still too high for my liking but that does not mean that gold has to collapse. It could trade sideways then stair step higher a bit on declining momentum. If it does this it will warn that a top is approaching.
My skepticism on silver was correct for the time being. Platinum and palladium are both within recent ranges, however, the October to December time frame is often a low period for these metals and given how thin the markets are for both, a little bit of interest can result in a big price move.
A couple of weeks ago, China unleashed a big stimulus program. Money managers around the world abandoned Chinese stocks over the last six months. When the programs were announced they jumped back in to an environment where there were no sellers. Big cap and smaller domestic companies (upper left then right) surged. Their markets were closed for four days and when they opened their markets peaked. Last night, prices rallied a bit. Basic commodities such as energy and industrial metals are following China day by day. Crude oil traded below a long term trend line in September. A classic bear market pattern is for a market to break a trend line that it touched multiple times then form an "N" around the trend line before selling off again. Hopefully this is not the case with oil but it is worth watching. Copper is following China too.
Two weeks ago I was short the market and took quick profits when it fell to the red line on the chart to the left. The one year graph on the upper right shows the path of the world's most watched market measurement over the last year. We made new highs this week on declining momentum.
The upper left side chart shows the trading patterns from September first through the end of December starting in 2020. Everyone talks about the "seasonals." These are typical price movements during different months. Looking at past market behavior and using it to predict the future is a very popular tool right now because of the low cost of computing and the available data on the stock market and individual stocks. In many years, the stock market sells off into a September, October or early November low then rallies strongly into January and sometimes April of the following year. My guess is that part of the current buying is the belief that November and December will follow the "seasonals." But look at the top line which is this year. Unlike the colored trend lines drawn over the past year's moves, the line trends up, defying the "seasonal" pattern. If stocks can defy the tendency to go down from September into the next month or two, can it also go against everyone's rally expectations for the last two months?
Big tech stocks are not doing as well. Lately, there are a lot of 52 week lows on the NASDAQ, setting up a big divergence between some winners and a lot of losers. In past markets this led to mediocre results at best and at times, big pull backs. The Magnificent 7 stocks that dominated for years are also falling behind going into this fall.
The hottest sector of the market is supposed to be semi-conductors because of the demand from data centers. Why is SMH, the ETF that tracks them not at new highs? NVIDIA is close to a new high and I notice that the CEO is all over TV talking about unlimited demand for his company's chips and software. When I see such heavy stock promotion it makes me suspicious. At mid-day today I checked the market internals on the NASDAQ. Decliners were leading advancing shares by almost 2 to 1 but NVIDIA was up. It seemed to be the last bit of glue holding everything together.
When the Fed cut rates, everyone on TV said that the Russell 2000 would be the place to put money because (again, looking at past markets) it goes up during rate cutting cycles. Now that rates are backing up again, that trade is fading. The high for the Dow Jones Industrial Average was two weeks ago on the day I started writing my last update. I mentioned that it formed three expanding zig-zag moves that could be a top. Given the action since then it might still be true.
Best Guesses - The possibility of a wider war in the Middle East or Europe seems to be forgotten going into this weekend. Traders are buying as if everything is great. Some say that it is because Trump is leading in the polls and betting markets and stocks surged last time he won. But 2016 was very different. Sentiment was depressed. Individuals and companies were hoarding money in fear of what a Democrat victory with Hillary would bring. Deposits at banks were surging due to lack of confidence. The rubber band of sentiment was stretched to the negative side and snapped back once Trump won. We don't have the same environment now and the private and public debt load, along with higher rates are game changers. Let's see what the next two weeks bring.
Stock Market - I don't trust it and have small shorts going into this weekend. Look at the graph to the right from the Real Investment Advice guys. You can sign up for some of their news letters for free and it is well worth it. The stock market is way ahead of corporate profits and the economy. This doesn't mean that stocks have to decline but it tells you that we are in a period of increased risk. 1927 to 1929 was a time of increased risk but if you were in the market you made money until you didn't. It might be wise to follow momentum oscillators like RSI and Slow Stochastic and buy when they are very low on daily charts and sell when they are high. It could be that we trade in a range for a while.
Bonds - Two weeks ago I was waiting for more of a sell off. We got it. I am buying now.
Dollar -We got the low I anticipated. Now I think we are close to a short term peak..
Gold and Silver - I like the metals but the RSI reading on a weekly chart is still to high for me to buy.
Other commodities - The China trade is wearing off. I would like to see one more pull back into the end of the year.
Best of luck,
DBE