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

February 17th, 2024

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.

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.

The Wall Street consensus going into the last two weeks was that inflation is slowing enough for the Fed to cut overnight lending rates. Distress in the banking sector and increasing interest payments on the national debt will also force their hand. At the same time, strength in the labor market means that the economy is doing well so buy stocks. The two biggest reports were the Consumer Price Index and Producer Price Index. Both were expected to improve (be lower) in January.

 

 

 

 

 

 

 

 

 

 

 

 

 

CPI came in hotter than expected with a month over month reading of .3% and a year over year of 3.1%. It doesn't sound bad but The Street was hoping for something lower. Shelter and Rent inflation (upper right) remains stubbornly high. There are many private forecasting groups that say rents are beginning to come down in some cities due to all the apartments built over the last few years but it isn't showing up in the official numbers. What disturbed the markets most is that the Services minus Shelter component rose to its highest level in months (directly to the right.) One of the big factors was a price increase in car insurance.

Bonds and stocks hit the skids on the news. Bets on the Fed cutting rates over the next couple of months fell.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bond bulls were hoping that the Producer Price Index would show more signs of disinflation that would indicate less price pressure for consumers in the future as lower wholesale costs made their way through the pipeline but it was not to be. Producer prices (upper left) rose "unexpectedly" driven by Services. The only moderating influence was from the energy sector which was the big driver of less inflationary over the last four months. Anyone following oil can see that it is at the top end of its range for the last couple of months and, if it stays there it will not help the disinflation argument. The upper right shows Producer Prices minus food and energy, highlighting its January jump. Directly to the left is a graph showing the history of prices included in the index. The author of the Zerohedge.com article wanted to point out that a lower rate of price increases (that Wall Street cheers) still means higher prices over time. The same is true of the Consumer Price Index.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On Feb 5th the Institute of Supply Management released a group of surveys from Purchasing Managers. Their Services reading ripped higher (left side). The Red line in the graph is the recent trajectory of economic releases which are all showing more activity since late November. The right side graph breaks the data into New Orders, Prices and Employment. All three turned up recently. Fans of lower interest rates don't like the improvement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services are thriving but Manufacturing is stalling. The left side graph shows a drop of half a percent in Manufacturing output last month. Some of it can be blamed on the weather. On the right is the latest read on Capacity Utilization which is slightly below trend.

 

 

 

 

 

 

The weekly jobless claims number came in at 212,000, a very low number. At this point no one believes it. Here is a list of the latest layoff announcements.

1. Twitch: 35% of workforce
2. Roomba: 31% of workforce
3. Hasbro: 20% of workforce
4. LA Times: 20% of workforce
5. Spotify: 17% of workforce
6. Levi's: 15% of workforce
7. Xerox: 15% of workforce
8. Qualtrics: 14% of workforce
9. Wayfair: 13% of workforce
10. Duolingo: 10% of workforce
11. Washington Post: 10% of workforce
12: Snap: 10% of workforce
13. eBay: 9% of workforce
14. Business Insider: 8% of workforce
15. Paypal: 7% of workforce

 

 

 

16. Okta: 7% of workforce
17. Charles Schwab: 6% of workforce
18. Docusign: 6% of workforce
19: CISCO: 5% of workforce
20. UPS: 2% of workforce
21. Blackrock: 3% of workforce
22. Paramount: 3% of workforce
23. Citigroup: 20,000 employees
24. Pixar: 1,300 employees

To the left is a graph included in a Real Investment Advice article and featured in many other places. Over the last couple of years, most new jobs gains went to immigrants working lower paying service jobs as opposed to American citizens looking for wages that are keeping up with inflation and a career path to better positions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Last time I thought the stock market was nearing an important top. Above and to the left is a graph of the weekly closing price of the Dow Jones Industrials and a simple RSI oscillator. You only get to see the RSI reading above .90 on a weekly Dow chart a few times in your life. It is usually not a great time to plunge into the stock market. On the right is an update on the S&P 500, its 40 week moving average the the difference between the index and the average. Stars mark previous highs in the difference. Again, past instances did not get investors in on the ground floor. On the right is a graph of the NYSE Composite with one of my favored patterns. It argues that stocks are making a "flat correction."

This is a common market form where the market hits a high, sells off, rallies back to its highs or slightly above them then sells off to the original "A" point. The market rallied in an almost straight up fashion since October. For the sake of art it would look better if we had a sell off that too back a third of the rally followed by one last attempt at new highs later this year. Let's see what this spring brings.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Above and to the left is a graph of the Russell 2000 which has been getting a lot of favorable publicity lately. It is made up of small capitalization stocks, dominated by regional banks. Above I mention a flat correction. The markings on the Russell 2000 index graph shows another example of a flat correction. On the right is a Sentimentrader.com graph of the seasonal tendency for IWM, an ETF that tracks the Russell 2000. Today marks a typical seasonal high just as the financial media is getting excited about a rotation from the tech sector into the Russell 2000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

So, is the market topping? It is too early to tell. Buyers tried to shrug off the bad CPI data and succeeded in pushing some of the averages back to their highs but fewer and fewer individual stocks are participating in up moves, never a good sign. Both the Dow Jones and S&P 500 fell short of their Monday tops by week's end.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The NASDAQ 100 (left) also fell short with the Magnificent 7 (directly to the right) bouncing around Tuesday's lows and not sharing in the same dip buying as other stocks. Next week, NVDIA reports quarterly results. The stock might be tracing out one of those contracting patterns that leads to a final burst of enthusiasm then a sell off. Some analysts are saying that the computer chip sector as a whole is not doing that well but the weakness is masked by NVDIA and AMD, the leaders in AI semiconductors. CISCO, which does networking hardware reported a quarter that fell short on sales and revenue. It surprised the Street because AI has to be networked and one would think that orders for CISCO equipment would be strong if companies were buying into AI. It seems likely that the same handful of companies that control much of the search traffic, messaging and cloud applications will monopolize AI which will result in pricing pressure on NVDIA and alternative chip makers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The left side graph shows where rates on ten year notes and 30 year Treasury Bonds closed the week. The yellow band shows you where these rates where when the stock market hit its lows in October of 2022 on worries about higher rates. Martin Armstrong, one of my favorite commentators on the markets, always says that rates are relative to expected returns. If you don't think you can earn 2% on an investment you are not going to borrow money even if rates are at 1% and if you are convinced that you can make 10% you will borrow at 5%. On the right is the latest on the yield curve.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a graph of TLT, the most popular ETF for tracking longer dated government bonds. My guess is that it follows a path shown by the red line with bonds falling a bit lower then a rallying. What could make them go up? Above, in one of the pictures of economic statistics it shows an ISM purchasing managers' survey of the services industry. Included in it is a line showing the upward trajectory in "hard data" on the economy. That graph is from February 5th. Since then, economic statistics weakened. Above and two the right is an update. It could be that the economy is about to turn down again.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is graph of the U.S. Dollar Index going back to the beginning of 2023. My working theory is that the Dollar sold off in five waves which tilts the odds towards a larger downward trend in the currency. The rally following point "5" is part of an upward correction. On the right is a month long picture of the Dollar. It traced out one of those contracting patterns between the red lines. The sideways trading on the left side of the graph is a larger contracting pattern. These usually lead to an ending move and reversal. If reality follows art then we started the reversal this week and should take back some of the rally following point "5". If so, then commodities in general could finally catch a break and bounce a bit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities are not doing well even with oil turning up a bit so any help from a weaker Dollar is welcome. They will also need help from China which is thought of as the key driver for commodities demand. Chinese markets were closed last week for a New Years holiday. Everyone will be watching when they open again to see if any of the recent programs the government put into place can stem the sell off. A bounce in China that lasts for more than a couple of days will help commodities do better.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Last time I was watching the short term gold pattern to see if it was tracing out a contracting triangle that would lead to a final burst to new highs. After the CPI data it plunged below the red line on the left side graph which nullified the triangle. We are in the "timing band" for one of the Cyclesman.com 21 day cycle lows. Wednesday's early plunge could have been it. A decline below the dashed blue line should bring in more selling with everyone who bought in 2024 sitting on a loss. On the right is a longer term chart of gold. Recent action is disappointing for bulls who argue for much higher prices but we are still close to all time highs.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a graph of the daily closing price of gold with the percent gain or loss in the Dollar Index added. It shows the trend in gold minus the influence of the Dollar. On the right is the daily closing price of gold and an index of gold and silver mining company shares in blue. The gap between the metals and the companies that mine them is very wide. In 2007 and 2008 it was also wide but in the opposite direction. At that time, investors in the stocks expected to be rewarded. Now they anticipate being punished. When these companies are out of favor, accounting rules with costs, free cash flow and dividends are the most watched things. In a more favorable environment, investors see these companies as underground vaults of gold and silver holding treasures that will be brought to the surface at future higher prices. They trade like out of the money call options with a high implied volatility.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Above are two charts of the weekly high, low and closing price of silver. The left side picture is in Dollars and the right side adds the percent gain or loss in the Dollar Index to the price. You can see the influence of the stronger Dollar in the difference between the two charts. Fans of the metal have to admit that during the recent period of high inflation, silver did not do much. Buyers who got in after September of 2019 are waiting for now.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a monthly graph of Bitcoin Futures. Bitcoin is closing in on its old high with fans predicting $100,000 plus levels just as they did a few years ago. The graph on the right shows the money flows out of gold ETFs and into the new Bitcoin ETFs. I had more airplane reading time last week and am nearly finished with Secular Cycles by Peter Turchin and Sergey A. Nefedov. In past eras people buried coins during times of war and social unrest. They knew that if their homes were ransacked, their wealth would be plundered and that if they fled to safety they were likely to be robbed on the road just as illegal immigrants are at the mercy of cartels in Mexico so they hid gold and silver in the ground hoping to be able to retrieve it later. Historians refer to these as coin hoards. Many have been found over the years and their dating is a guide to these periods of insecurity because they tend to be clustered around uncertain times. Is the price action in Bitcoin similar to burying coins in the ground and a +sign of the insecurity of our times? I am from an older generation and it is difficult for me to have faith in anything that exists only digitally, literally a "nothing" which the government can legislate out of existence. I still prefer "things." It seems odd to me that much younger people are satisfied with digital images versus going on a date, Zoom calls versus sitting face to face and digital tokens as opposed to gold and silver. Another theory of the popularity of Bitcoin and the current speculation in the stock market is that getting ahead at work (see layoff announcements from above) or saving for a house is next to impossible in the current environment. With the traditional ways of advancement closed off younger people with some money who want to "get ahead" are turning to speculation in symbols of wealth that they hope to be able to cash in at higher prices in the future. Likewise, retirees know that future Social Security payments are in jeopardy and are putting a similar faith in the financial markets. Coin hoards are found because those who buried them did not survive the chaos of their times. Let's hope that people who are buying Bitcoin at $52,000 or NVDIA at $726 have better luck.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From February of the year 2000 into the following summer, palladium traded above $500. Its next sustained move above $500 was in 2010 and it never looked back. For decades, platinum was more expensive than palladium. Last week, for a few hours, platinum once again traded at higher prices than palladium. The seasonal window for good platinum and palladium prices closes over the next month. As mentioned in the last update, Nornickel will cut platinum group metals production by 15% this year due to maintenance work and S African miners are also scaling back capital expenditures which will result in less future production of these metals. On the right is the price path of Investco's base metals tracking ETF, DBB. China's economic trajectory will greatly influence the future price expectations of all industrial metals including platinum and palladium so watch how their markets do next week.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil continued its 2 month bounce from support levels hit in December. U.S. production is at an all time high at 13.3 million barrels per day. Domestically stored inventories aside from the government's strategic reserve are 2% below the five year average for this time of the year. Gasoline is also 2% below and distillates are 7% below after being 15% to 20% below for most of last year so there is no shortage of oil or products in the U.S. Oil and gasoline tend to hit seasonal lows around now and rally into the summer. You can see by the Crude Oil chart that it didn't work that way last year. On the right is a one year chart of gasoline futures (in black) and the yield on a ten year Treasury Note in blue. Gasoline rallied in anticipation of spring and summer driving season plus a large mid-west oil refinery has been out of service for a couple of weeks due to a sudden power outage. All of its systems have to be manually checked before it can get up and running. I included the interest rate line because rates appear to have a close correlation with gasoline prices with a slight lag.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a five year chart of Natural Gas prices. They are closing in on all time lows. Natural Gas production is hitting record highs. Some of it is coming with oil being pumped out of the ground profitably. The natural gas is a co-product so its production is somewhat unaffected by price. The great hope for natural gas prices is from exports of LNG but there are no new export plants due to begin operations for another year and the Biden administration is talking about restricting export permits for the sake of the environment. A super hot summer will help demand because of increased use of air-conditioning and electricity generated by natural gas. On the right is Devon Energy, a big natural gas producing company. It is interesting that natural gas is hitting rock bottom but most of the natural gas production companies are still optimistically priced. Many of them hedged future prices through forward and futures contracts but as time goes on, they will use them up by delivering current production against those higher prices and will be left selling their natural gas at current prices. Natural gas prices might not rally until you read about wells being shut and capital expenditures slashed.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

XLE is the biggest energy patch ETF. Over the last couple of years it traded sideways in what fans are hoping is a consolidation before a major breakout to the upside. The red line is a simple RSI momentum oscillator that had a series of low readings going into the new year. It is now nearer the upper end of its range. Given the war near major oil producing countries it is understandable that portfolio managers want to hang on to big oil producers despite oil clinging to the the $70 to $75 range. Some of the biggest companies just reported great earnings including Exxon-Mobil. A Zerohedge.com article had the right side chart in it. For some reason, speculators recently started selling the stock short and have an unusually large position in the shares. This would suggest that either a) insiders know that Exxon is considering a large, stupid acquisition similar to those that major oil companies made after the early 1980s peak in oil prices or b) these speculators are about to lose a lot of money in a short squeeze that tacks a few points on to XOM and drives XLE toward the upper trend line on the chart.

 

 

 

 

 

 

 

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On the left is the latest reading of the rising inventory of new houses for sale. On the right is a graph of the recent price action in XHB, an ETF of new home builders. It appears to be tracing out the contracting pattern I frequently highlight which often leads to a top.

 

Best Guesses -

Stock Market - I am still betting on a sell off. Next week the focus will be on NVDIA but lots of other companies are stalling so even if NVDIA's earnings are great, once they are released you could see more selling.

Bonds - I am looking for a bit more downside before a rally.

Dollar - The chart patterns say that last week could have been a top for now.

Gold and Silver - My bullish pattern didn't work out but if I am right on the Dollar we should get more of a relief rally. Historically, March has been a down month for gold but with all the things happening in the world including elections in Russia I don't want to sell it short. My longer term worry on silver is that the third largest source of demand for the metal is in the manufacture of solar panels and this business is dependent on government subsidies. Governments are running huge deficits and will likely be forced to curtail all subsidies in the future.

Other commodities -Oil rallied last week but many other commodities did poorly, especially grains after the weather improved in S America and domestic grain stockpiles were predicted to hit near record levels. China's economy will be the thing to watch and no one really knows if their economy is improving or not. We just watch the direction of the stock market in China and go from there.

Note - There are drones and missiles flying around and millions of people in the U.S. who walked in unvetted. In the 1920s, immigration was brought to a trickle after recent immigrants who were communists and anarchists began bombing and killing people. Back then they had a screening process and people who wanted to kill us still got through. Will the result be different with unvetted millions in the country today? The times are getting increasingly violent and unpredictable and that makes all forecasting, including my guesses less reliable.

Unneeded Commentary - Seats at the table. Jesus, Chris Christy and Bill Kristal.

Luke 14 7-9 "He went on to tell a story to the guests around the table. Noticing how each had tried to elbow into the place of honor, he said, “When someone invites you to dinner, don’t take the place of honor. Somebody more important than you might have been invited by the host. Then he’ll come and call out in front of everybody, ‘You’re in the wrong place. The place of honor belongs to this man.’ Embarrassed, you’ll have to make your way to the very last table, the only place left."

Back to Secular Cycles. The authors show that during the growth phase of economic cycles there is an increase in the wealth and number of "elites." In the agrarian societies that are the subject of the book these tended to be land owners who lived from the profits of farming or the rents they collected from smaller farmers on their lands. Their numbers increased because there were more opportunities in a growing economy and, over time, wealthy land owners had children so property was divided as generations grew up. During the stagflation stages as population peaked, rents held up for a while but eventually there was in unbalance between the profits available and the growing number of elites. The authors refer to this as the overproduction or surplus of elites. In midi-evil times some of the surplus went into the Church or sons of the wealthy served as officers in the army of the King where life expectancy was short. Eventually there were just not enough seats available at the elite table and some were forced into downward mobility as their incomes fell. Others began to fight among themselves and against a weakened (by falling tax revenues) central government. Social unrest, war and destruction resulted along with the death of enough elites (and commoners) to bring things back into balance.

Several of President Trump's great sins when he got into office were to deregulate industries, refuse to meet with lobbyists and to not include noted think tank people and politicians in his administration. He was more interested in doers as opposed to thinkers. Deregulation meant less people devoted to compliance in both business and government. Not meeting with lobbyists lessened the importance and economic worth of some of the most important and highest paid people in Washington. Plus, President Trump's focus on pro business policy made them less necessary. When Democrats control the White House those of us on the conservative side of the fence are bombarded with pleas for money from Conservative Think Tanks claiming that their important "white papers" are a must read and that they are the only thing keeping us from being devoured by Communists. Trump had no need for them and many quickly turned against him when they were not courted by the White House (Bill Kristal). Similarly, politicians who thought they would greatly benefit from the spoils system became bitter enemies when they didn't get the appointments they thought deserving of the high place their personal stars occupied in the national cosmos. Take Chris Christi for example. Under Trump the seats at the most important table were reduced and embarrassed, some were forced angrily to seats of lesser status from which they raged at the President.

Our economy has done well since the 1980s and like those agrarian societies we have an over production of elites. Not only do we have a lot of very wealthy people but we have large groups of very educated younger people lacking in money making skills and any special gift that would allow them to significantly add to the productivity of the economy. However, because of their degrees, educational emphasis on self esteem and the life style in which they were raised they are sure that they deserve a high paying seat. With the economy stagnating since the Great Financial Crisis, the Government stepped in to add seats of importance. One way to look at all the activity surrounding "Climate Change," payments to NGOs, ESG and Equity, and Diversity and Inclusion is that like the Church and Calvary in midi-evil Europe, they make more seats available for the "worthy." Think of all the job descriptions added to your company's payroll over the last decade having to do with these issues. Many do not have much to do with the core money making machinery of your enterprise and are in fact, a drain on profits and interfere with productivity but they allow the surplus of elites and elite wannabes to find titles and personal recognition. A similar thing is happening with all the month flowing to organizations involved in illegal immigration.

Last week I was watching Bloomberg very early in the morning. A reporter was interviewing an English Gentleman who was a climate change bureaucrat in the UK Government and asked him about a possible Trump Presidency. He was appalled at the thought of this barbarian rising to power again and diminishing the importance of Climate Change. For him, a government that did not pay people like him a lot of money was unimaginable. I understood why Trump (or any true conservative) faces such hostility at many levels. We have had 40 years of relatively good times minus a few years after 2009 when college grads from good schools had to work at Starbucks and Whole Foods for a few months. The number of people who feel deserving of that good seat at the table expanded greatly with government creating new spaces to absorb them based on ideology and theology while borrowing more and more money to keep it all afloat. A Trump win would put all those spots at risk.

DBE