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
Jan 4th 2025
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.
Many money managers took the last two weeks off. Trading volume was light and moves were erratic. There was not much attention to the economy and there were no major reports of interest. Year end investment strategies dominated the last sessions of trading. Here are a few of the reports that hit the tape.
New Claims for Unemployment Benefits hit 211,000 on a seasonally adjusted basis (left, green line) and 283,000 on a non-seasonally adjusted basis. Continuing claims (right, red line) fell a bit to 1,844,000. 1,900,000 is the recent high so a number below it is considered OK for the economy. The four week average of New Claims was 223,000. A four week average of 400,000 and above is considered to be the clear sign of a recession and time for the Fed to cut. We are not even close to that number. Cynics continue to believe that after January 20th, these numbers will turn sour. Why make Trump look good?
Home prices rose again in nearly all of the top 20 cities . Only Tampa and Cleveland were down. The rate of increase (right) continues to trend lower. One of my predictions for 2025 is that supply will increase and prices top out and fall in many places. I think this will be due to a combination of real estate taxes, demographics and interest rates. A large percentage of the population is retired and living on a fixed income. Cities and towns continue to jack up real estate assessments and tax rates. Older owners will look at the taxes and maintenance costs versus the monthly income from cashing out and putting the proceeds in a money market fund. If stocks sell off in the first quarter it will cause more selling since one leg of owners' financial future is faltering.
Credit Card default rates are closing in on levels last seen during the Great Financial Crisis. This doesn't speak well for Bidenomics. The debt load will still be there after January 20th. On the right is a graph of the rates paid by consumers on credit cards. There is a lot of talk about capping the rate at more than half its current market rate. Included in the current rate is the money needed to make up for all those defaults. If the rate is legally capped you will see credit card issuers approve very few new cards and a big tightening of financial conditions.
There was a big upswing in confidence among CEOs and Small Business Owners following the election (left). Most are looking forward to an administration that likes business, favors less regulation and lower taxes. The latest Chicago area Purchasing Managers Survey shows that help is needed (right). The index hit levels usually associated with recessions.
On the left is a J.P. Morgan reading on global manufacturing. It went negative last month with Europe leading the way down. The strongest region was Asia with India being the best. China was slightly positive and the U.S. slightly negative. Late in the week, the Shanghai Composite fell sharply from a sideways consolidation which many thought would lead to another rally phase. Hope springs eternal and China bulls will understand the overall form as part of a larger correction of the September move off of the bottom. There is a lot of negative talk about China among our politicians. From a stock market standpoint it makes no sense to wish for other economies to fail. Many of our large and mid-sized businesses get a good chunk of their profits from exports. China is the world's second largest economy and the number one consumer of commodities. It is wrong to think that Europe and China can do badly and our economy will avoid any pain.
Please keep in mind that I do these updates every couple of weeks because that is my trading orientation. I look for pattenrs that indicate longer term trends and take in a lot of information to do the same but I find that markets are a lot like the weather. Accuracy decreases with time. I am trying to figure out what is likely to go up or down over the next 10 trading sessions. This is different from financial planning or building a successful portfolio or a retirement plan. On the upper left is a graph of daily bars on the Dow Jones Industrials with arrows pointing to theoretical lows that coincide with Cyclesman.com's 39 trading day low to low cycles. Some run longer and some shorter but over time they average 39 days with 70% falling plus or minus 5 days. The green dashed lines highlight the trend of higher low points. The most recent turn on December 20th was lower than the previous arrow which is not a good sign. The right side graph is a close up of the trading from the all time high into the December 20th low then through last week. From the red oval the market rose, fell, then rallied again, marked with an a,b and c. When the initial rise from a low makes this kind of pattern it tilts the odds towards more down side action. The down side does not have to be immediate. We might trade sideways for a while with prices rallying back to the "a" level as they did in 1987 highlighted in yellow to the left. In this case, last week's low would correspond to the Sept 22 low from that year with another one to two weeks before another sell off. Upward corrections can be complicated and take different forms so trading them is risky. The important thing to remember is that if you believe in Chart Mysticism, it is likely that there is another down leg coming in the future and it might be big.
Bullish traders will point out that on the S&P 500, the most recent 39 day low point was above the previous one. The Dow Jones Industrials are only 30 stocks and if Boeing and United Health have a bad week it moves the Dow a lot in comparison with the broader market. The counter argument is that the S&P 500 has the same concentration problem with the Mag 7 stocks responsible for most of its gains and earnings while the majority of its members are trading below important moving averages and not increasing their earnings per share much over the last year. The right side graph is a close up of recent trading with the same a,b,c type formation that the Dow Jones made. We could see multiple swings before another sell off or things could get nasty next week.
Above are close ups of the NASDAQ 100 and Russell 2000 with the same a,b,c type pattern then another trip to the initial lows. Chart pattern interpretation is very subjective and involves probabilities, not certainties. Those subjective probabilities point to more portfolio pain at a time when surveys say that people have more of their wealth parked in the stock market than ever.
Cyclesman.com has 22 week cycles that are highlighted by the red arrows. The timing band for these is plus or minus a month 70% of the time. One is due now. It could have bottomed on the December 20th low or we could make the low on another sell off into February that corresponds with the next 39 day trading cycle highlighted earlier. The right side chart shows the weekly closing level of the Dow Jones Industrials with a simple RSI momentum oscillator. I use momentum oscillators this way. Your odds of making money are best if you buy when the oscillator on a weekly chart is in "oversold" territory. This usually corresponds to a period when there has been heavy selling and everyone is pessimistic about stocks. We are not yet there. Nearly all the major brokerage firms are predicting gains for 2025. None are looking for another 25% year but all believe that you will make money by being in the major averages for another 12 months.
Most of the companies where much of the world's wealth is concentrated turned down recently. In one of the last updates I said that we were at peak Trump and most likely peak Elon Musk, along with Tesla. Their 4th quarter sales were less than expected so selling followed. Last week META switched one of their top executives from a strong Democrat to a Republican and all these companies recently sent representatives to Mara Lago where Elon is already parked to say that they really didn't mean it when they compared the new President to Hitler during the campaign and to beg for continued favor from the new administration. It reminds me of a line from the famous poet, Freddy Mercury - "Nothing really matters, anyone can see. Nothing really matters. Nothing really matters to me. Any way the wind blows" Except for making money that is.
NVIDIA was the darling of the AI world. Over the last month the narrative shifted a bit because AMD and Broadcom are eating into their market share. Analysts who claim that AI is "just in its infancy" switched to Taiwan Semiconductor Manufacturing because they make the chips designed by all of these companies. Despite a number of analysts repeating this last week I was surprised to see that TSM is below its previous high. AIQ, the ETF focused on Artificial Intelligence companies and SMH, the chip ETF are both below recent peaks with SMH looking a lot like the chart of the Shanghai Composite before it broke to the downside. It is also interesting that Microsoft's chart looks the worst among the Mag 7 companies. Microsoft is spending more than any other company on NVIDIA chips and other hardware to build out its AI infrastructure.
On the left is an update on the U.S. Government Debt yield curve. The orange line is the latest. Rates on medium term and long term debt are the highest they have been all year. On the right is the history of rates on the most popular government debt instrument, the 10 year note. The last update showed TLT, an ETF that follows longer dated bonds and argued that it was making a flat correction in an up market. Rates move opposite bonds so you can make the same argument about rates. The 10 year peaked at 5%, fell, then traced out a zig zag up, another slightly below the original low and then a five wave advance toward the top of the formation. If reality follow art then it should top soon. Social media is now filled with amateur bond analysts talking about the U.S. deficit train wreck and our borrowing doom loop. It all makes perfect sense. However, most other major countries are in wost shape so money continues to flow our way. Right after Christmas there was an auction of 7 year notes that had the best demand on record from both foreign and domestic buyers. Earlier in the week a five year note auction also went well.
Crude oil had a nice pop last week. The upper left graph shows the recent action. The upper right one puts it in perspective. The lower left chart shows XLE, the big energy ETF (blue) and oil prices. Red rectangles mark the low point of the initial sell off in oil from plus 100 prices and where XLE traded at the time. Oil is lower now and XLE is higher. Over the last two weeks, oil analysts were more bearish than they have been over the last year, predicting a surplus for 2025. So why are buyers for oil so aggressive? One reason might be the strength in the U.S. Dollar. Oil is priced in Dollars and lately, the Dollar rose quickly . The lower right graph compares the price as we know it (lower line) and the price of oil with the percent change in the Dollar Index added. On Dec.6th oil traded at $70.51 and it closed last week at $74.35. The numbers for the Dollar adjusted line are $102 and $110 so if your currency is losing value against the Dollar, oil looks like it is spiking higher in your own money. Sometimes buying causes more buying as users are afraid of higher future prices so they lock in current levels by purchasing more than normal now. The flip side of the coin is that non-Dollar producers are also getting that higher price, encouraging them to export all that they can produce.
Last time I included the Dollar Index chart shown on the upper left and noted that following the red dot, the price action formed an almost textbook flat correction in a down market. It still looks like this is the case. It is not that the Dollar has great fundamentals. The problem is that Europe is self-destructing as its green agenda kills business and raises costs for everyone, its open immigration is resulting in violence in major cities and the war with Russia means no trade with what was a major trading partner. With the Yen it is an interest rate story. The Bank of Japan is keeping interest rates far below those in the U.S. making the Dollar a much better place to park wealth. The upper right graph has arrows at Cyclesman.com's theoretical 23 day cycle lows. One is due at the end of next week! On top of the chart action, analysts following seasonal tendencies say that January and February are two of the best months to own Dollars. Given all the popularity of seasonal analysis, will smart traders start to sell early?
Gold is not giving up a lot of its gains. My theory was that it would move sideways for a couple of months in a complex pattern that is difficult to trade. So far, this is proving to be correct. The next 21 day cycle low is due in mid January. Momentum oscillators such as RSI (upper right) are in neutral. Given the likelihood of a trading range market it might be best to wait for oversold levels on the oscillator before buying. Gold mining company shares are getting dumped in what looks like a washout for the group. To the right is a graph of gold and Newmont. We should be close to a pessimistic extreme in the shares but I thought we were there a couple of weeks ago and the selling continued.
January and February are supposed to be two of the best months to own silver and platinum group metals. Last year, a lot of markets ignored seasonal tendencies so betting the farm on them does not always work. I am also worried about their reaction to the stock market. If there is major selling in stocks it usually spreads to commodities that benefit from a strong economy like silver and industrial metals. A few good days for the markets in China would help a lot.
I continue to nibble away at WEAT, the ETF that tracks wheat prices. I am also watching ADM, the monster grain processing company. I think we are headed into a period of turmoil. These cycles usually start with inflation in food and shelter costs that lower the standard of living for odinary people. We are seeing that now. For a while, companies are able to profit but then they roll over too because their customers are broke. Unemployment and social unrest follow. For some reason, these periods usually include years with terrible weather and crop failures. War and social unrest and weather interrupt farming and transportation of food to market. I remember a few years back when the level of the Mississippi river was low and grain shipments were disrupted. The same thing happened in Europe. WEAT is my long term hedge against things coming apart.
Best Guesses -
Stock Market - Last time I was looking for a bounce in stocks and we got it. The pattern of the up move looks suspect. If reality follows art, there is more downside coming in this market. Cash at 4.5% is not a bad way to go.
Bonds - Bonds should be close to a rally, especially if stocks weaken. Recent auctions went very well despite predictions of no demand.
Dollar - The flat pattern in the Dollar should be close to a top.
Gold and Silver - Look for more choppy and difficult action. If I am right on stocks then silver could take another hit along with platinum and palladium
Other commodities - Oil had a nice rally but I don't trust it. Other commodities are going to need better news from China.
Weather news -
So we know that things are not warming up in Greenland - https://www.zerohedge.com/weather/greenland-surface-temperatures-fall-20-years-further-blow-climate-alarm-narrative
Now we find out that the Arctic Ice cap is 26% bigger than it was 13 years ago - https://www.zerohedge.com/weather/doesnt-fit-msm-narrative-latest-arctic-ice-data-shows-26-larger-2012
Tell me again why people are demanding Net Zero and the closure of farms to stop global warming?
Best of luck,
DBE