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
Nov. 9th 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.
Election expectations drove financial markets over the last two weeks. This was the first election with popular betting and it proved to be more accurate than mainstream media polls. Will people pay for polls when betting markets offer a free and more accurate alternative? The stock, bond and currency markets also front ran the Republican sweep. With days to go there were numerous articles highlighting what sectors to buy or sell when Trump won. Many of the articles said that Value and Small Caps would be the biggest winners..At around 8 PM Eastern time as the first polls closed on election night, Trump stocks took off. By 10 AM on the day after the election, the Russell 2000 was through the roof. On Thursday there was little follow through in the Russell 2000 and Dow Jones but mega cap Tech kept rolling into the close. On Friday, Mag 7 stocks and the Dow Jones carried the day.
The other event of the week was a Fed decision and as widely expected, they cut overnight lending rates by 0.25% with Fed Funds now in the 4.5% to 4.75% range. Analysts noted that their language was less dovish than in past rate decisions. A few other economic numbers were released in the past two weeks but compared to the election results and future expectations for life under President Trump, data from last month looks unimportant.
The JOLTS report from the week before the election had a drop in job openings. You can see the trend on the upper line in the left side chart. The number of jobs available is still high but fading. The right side graph shows Quits and Hires. The red line is the Quits data. These are the number of people willing to quit their current jobs because they think they can find something better. Hiring increased again. Keep in mind that this survey has around a 30% response rate with the rest being guess work.
The Conference Board reading on consumer confidence (left) rose again with respondents saying that current conditions improved and the future will be better. Some attribute this to the positive vibe around a Trump victory that showed up in the betting markets. Macro economic conditions have improved over the last two months The right side chart shows the trajectory of the Citi Economic surprise index that compares consensus forecasts with the actual data releases. So, why is the Fed cutting rates?
The left side graph shows weekly new claims for unemployment benefits. They recovered from the storms then rose again last week. The right side graph shows the 4 week moving average of new claims (green) and continuing claims. In past decades it was thought that when the four week moving average of claims hit 400,000 it was the sign of a recession and signaled lower rates by the Fed. This time around the Fed started cutting during what appears to be an OK labor market and a stock market in the middle of a speculative binge. Cynics claim that it was to help the Democrats stay in power.
Democrat economists kept questioning why the electorate was unhappy. The raw economic statistics showed a good economy and low unemployment rate. The pictures above shed light on it. Real Wages have declined in the last four years. They were up under the previous Trump administration. Wage gains are fading (upper right), food prices are creeping up again and lower income people who managed to save with COVID checks have run through that money and are using credit cards to pay for things. I am most of the way through Geoffrey Parker's "Global Crisis" a 700 page study of the history of the 1600s That century saw a real climate crisis. In the 1500s, the weather was warm and crops thrived. Populations around the world increased. Rents rose. In the 1600s, the sun's energy decreased, temperatures dropped, there was increased volcanic activity with ash that blocked the sun. Temperatures hit lows that have yet to be surpassed. Crops failed and the price of food spiked to unaffordable levels. Millions starved. Millions more sold themselves and their families into slavery to try and survive. Social unrest followed. Governments were weak with leaders who picked fights with neighbors, borrowing heavily to do so and raising taxes on starving people to pay for it. A third of the world's population disappeared with some regions doing worse than that. A lesson from this history is that if you want unhappy citizens, increase the price of food and rent. Make it difficult for people to keep up with the increased costs and have no program to make things better while promising to raise taxes. Force people into debt with no way out. Lastly, amid the dissatisfaction, new bosses demanded that people change religious and cultural habits. In China, when the Manchus conquered the Ming they demanded that all men cut their hair in Manchu style. "Cut your hair or lose your head." This alone caused millions to revolt. The English Civil war was kicked off by England demanding that Scottish Churches change their liturgy to match the Church of England. The Scots rebelled and won the initial war against the English. "Wear a mask, get a vaccine or be fired!" "Allow men in women's locker rooms!" Our modern day equivalents. Is it any wonder that Democrats lost?
Two weeks ago the market looked like it would fall a bit more going into the next week then rally as we approached the elections. Every trading desk in the world had the 2016 chart and play book ready. As betting markets firmed in Trump's favor so did stocks. Some Democrat controlled polls tried to throw investors off track by claiming there was a surge of women voting for Kamala but it didn't work. Traders are hoping that the market will be a clone of 2016 with a brief sideways consolidation then more of a rally into December.
Is there a reason to expect a different outcome this time around? One variable is very different. Interest rates are higher than they were in 2016. The upper right side graph shows rates on the 10 year and 30 year bond. They were a percentage point lower The chart directly to the left shows five year Treasury Note rates then and now. The upper left side graph updates the yield curve. The green line is from late September after the Fed cut rates and markets were pricing in rate cuts for every future Fed meeting. The orange line is where rates closed on Friday.
These graphs are from an update done by the guys at Real Investment Advice. You can sign up for the free updates. The left side chart shows that the growth rate of our economy has slowed as debt increased. The right side graph shows Federal interest payments as a percent of total expenditures. The key to a successful future will be to buck the trend and get the economy to grow at a faster rate. Taxes could be linked to consumption or income or some combination. In the end, all tax revenue is a function of how well the economy does. Donal Trump is a great salesman. If anyone can convince money managers around the world to keep financing our deficits it is him and that is what we will need. Traders will be paying extra attention to monthly Treasury auctions, looking for the bid to cover ratio to be within the six month average and for foreign entities to stay in the 60 to 70% range of buyers.
TLT tracks the market price of longer dated Treasury Bonds. If you own long term bonds the value of your portfolio looks something like TLT, hitting the skids from 2019 into October of 2023 as interest rates rose. The right side TLT chart shows the last two years with my fantasy trade. It could be that the rally out of 2023's low is the first leg of an upward correction. We could be near the end of a classic "flat" pattern that will be followed by another up move. Keep in mind that if it happens, it is only a partial retracement of the down move before another sell off (rates higher). There is a lot of worry in the bond market about tariffs and increased spending under a Trump administration just as there were worries about a recession and stocks in past Octobers. Most of my readers are interested in stocks, gold and silver. I spend time on interest rates and the bond market because the world is more leveraged (deeper in debt) than ever as are a lot of citizen in the U.S. The higher debt levels mean that every upward tick in rates equals more income siphoned off to pay debt as opposed to consumption, savings and investment. Increased debt makes the whole system more fragile. To the extent that President Trump can restore a feeling of order here in the U.S. and around the world, investors will "want to believe" and keep financing never balanced budgets. As he gets midway through his Presidency, doubts are likely to mount and deficits will matter more than ever.
The Dollar bounced from one of its 23 day cycle lows (Cyclesman.com) in response to higher interest rates and renewed President Trump confidence. The longer term pattern (right) still looks like an initial decline followed by a long consolidation that should lead to another sell off. I read articles every week by pundits predicting and relishing a Dollar collapse and civil unrest. Most are from people with a financial interest in selling gold and silver, guns and emergency food and supplies. I certainly don't wont a Dollar collapse and civil unrest! Please, give me a few more years of safe travel and a quiet neighborhood.
On the left is a weekly bar chart of DBC, an ETF that tracks a broad basket of commodities. There was a slight up-tick after the election but by weeks end it faded. That might have more to do with disappointment in China's latest stimulus program. Most stock markets around the world rallied some last week but in the case of China, markets are still skeptical about the future.
Above are weekly bar charts of Soybeans and Copper, two commodities associated with inflation. One could argue that soybeans are low enough in price to buy. Weather around the world and especially in the U.S was good for crops but how many years in a row will that last? Copper is off of its highs despite industrial and materials stocks soaring on expectations of increased industrial activity.
Energy prices are in check with oil sitting on a price shelf of support around $70 and Natural Gas near multi year lows. Trump sanctions on Iran and Venezuela could raise world oil prices but the U.S. is amply supplied with production recently hitting all time highs at 13.5 million barrels per day (directly to the right).
Over the last two weeks I heard analyst after analyst link "Trump" and "inflation." Wall Street has a poor reputation when it comes to inflation projections. Markets for basic materials are not following the scrip.
Two markets near and dear to most of my clients, Palladium and Platinum remain tame. Palladium closed the week at its 200 day moving average while platinum held above it for now.
Silver had a good run but is far short of its peak from more than a decade ago despite gold hitting all time highs. The blue line on the right side graph shows the difference between the closing silver price and its one year moving average. Red dots mark peaks in this measurement. We are too close to red dot territory for me to be interested. I will wait until the next green dot opportunity.
On the left is an update of gold's weekly closing price and a simple RSI momentum oscillator. The RSI reading is still too high for me to be a buyer. This could be a mistake. We are in the timing band for one of Cyclesman.com's 21 day cycle lows. Traders will be watching the recent highs and last week's lows. If we can't take out the highs in the next week they will become discouraged. Fear of war and uncertainty are key drivers for the price of gold. Now we know who is going to be President and his inclination is to want to make money as opposed to war.
On the left is a monthly bar chart of the S&P 500 and a slow stochastic oscillator. A high oscillator reading is not a sell signal. It tells you that the market has come a long way and if you buy today, you are certainly not getting the low. On the right is a daily graph of the last year. Last week we hit a channel line drawn off of previous peaks. So, will we continue like we did in 2016? No one knows but things are very different in 2024. Above I mentioned the debt levels and interest rates. Going into this fall, investors have record amounts of wealth in the stock market relative to other asset classes. Investment advisors are at peak bullishness and consumer polls show complete belief in stocks. In past cycles this kind of behavior was coincident with market tops. Analysts who compare current market behavior with past cycles still say that the coast is clear for higher prices over the next year even if there is some short term digestion. We will see.
Analysts were unanimous in picking small capitalization value oriented stocks as the most likely winner in a Trump administration with the Russell 2000 Index and ETFs as the best place to make money. Unlike its large capitalization cousins the Russell 2000 is still below previous highs. Last week, the NASDAQ 100 beat it again on the strength of NVIDIA and Tesla. Fans of the Russell 2000 say that investors bought Mag 7 stocks as defensive plays over the last four years because they were the only companies with great earnings. Now, they expect smaller companies and other sectors to catch up.
Best Guesses -
Stock Market - I am not as confident as others for a repeat of the 2016 pattern. Unlike 2016 when Hillary was projected to win, betting markets and polls were showing Trump as the likely winner. Portfolio managers were loaded up with buy orders for theoretical Trump winners. I see it as a crowd waiting for a train and when the train pulls in, the whole crowd pushes and shoves their way in as fast as possible. After last week, how many are left to board. I am going to watch for the Trump sweep to be like a biotech firm when it announces initial successful trials on a cancer drug or a gold mining company when it reveals extremely good gold assays on a large ore body. In both cases there is a surge in the shares then a consolidation period. Often, reality doesn't turn out to be as good as hopes and dreams and the highs seen after the announcements are not revisited for years. In the case of our market, my fantasy trade would be for stocks to pull back into December with another move to new highs going into inauguration day.
Bonds - We got an initial bounce from the lows last week. If prices can stay above last week's bottom for a few sessions I look for more gains..
Dollar -It might have peaked around the election and could follow the pattern that I want forstocks with another high in January.
Gold and Silver - If we can't take out the recent highs next week I will look for lower prices.
Other commodities - Traders' focus is on stocks. Commodities are not doing much. If they continue their declining trends I will start worrying about deflation and an economic slowdown, the opposite of what most analysts are predicting.
Additional Comments -
1 - Another pattern from a previous year that I am watching for is the post 9/11 attack unity that was quickly dissolved as Democrats feared future election results from a popular Republican President. This year's electoral victory and the extent of it knocked left wing organizations off of their "resistance" scripts. They were hoping for a close and contested election where they would head to the streets with signs and megaphones denouncing a Trump dictatorship. Give them a week or two, just like in 2001 to get their act together and figure out a way to undermine the country and prevent a new Trump administration from being successful.
2. Have you been following the brief Trump videos where he outlines his policies and actions as his administration starts. Here are a few of them - a) The government will recognize only 2 sexes. b) Complete investigation of the Intelligence Community with possible prosecutions for laws that were broken. c) Going after the Drug Cartels full throttle with confiscation of their assets and the death penalty for traffickers and cop killers. My initial response is that our new President had better double his security detail and hope that he is paying them more than the CIA or Mexican Cartels are willing to pay them to look the other way.
Best of luck,
DBE