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 June 19th, 2021

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 - On my wide screen monitor 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 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.

Please forgive my typos. I did not have time for the usual delayed editing that saves me from many mistakes!

Two weeks ago I listed the alternatives that investors were debating. Are stocks rallying and commodities higher and economies expanding due to temporary Central Bank largess that is peaking in the second quarter of 2021 or is something more sustainable taking place? At the time, the consensus was that the Fed needed to let the market know that they were aware inflation might accelerate and had a plan to deal with it. Most articles I read advised buying gold, other commodities, selling bonds and warned of a Dollar that will decline. I was looking for more choppy stock market action. Gold and silver were not trading like inflation hedges so I didn't trust them. Instead they were moving up and down with bonds. What a difference two weeks makes!

 

 

 

 

 

 

 

 

 

 

 

The number of people on some kind of unemployment compensation fell below 15 million for the first time this year. Weekly new claims for unemployment rose to 412,000 after two weeks below 400,000. The number of people getting pandemic unemployment assistance rose slightly despite help wanted signs everywhere and half the states cutting back on some benefits. An article I read said that employers are offering signing bonuses to those willing to come back along with slightly increased wages. Employers know that the extra benefits will end everywhere at the end of the summer and people will be looking for jobs. Upward pressure on wages will diminish.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Data on import and export prices showed that both are headed higher as is the trend with most things. The left side graph also shows the now famous China Credit Impulse that many articles on the Zerohedge.com website feature. In past cycles a downturn in this measurement led commodities in general by 3 to 6 months. On the right is an index of agricultural commodities prices. Most topped out in April.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Housing starts were up slightly and permits down. The prices for homes are in the stratosphere. In my town, anything for sale is "Under Contract" within a day or two. This is despite surveys that show consumers are postponing purchasing cars, appliances and homes due to the high prices. Lumber, the poster-child for shortages is down almost 50% from its peak. To the right is a complicated graph from the econimica website. The whole article is worth reading as are his previous entries. Month after month he points out that there is no population growth and there is a decline in the number of people, 15 to 55 who are working. This means fewer future consumers for all kinds of things. This picture focuses on the Northeast United States, an extremely hot real estate market. It shows that the year over year change in population is negative while the trend in the number of working people is flat. My state of Massachusetts is one of 17 states people are moving out of. The point of his article is that in states like mine, the red hot real estate market is unsustainable over time because there are fewer potential buyers every year relative to an over 60 population that are sellers of properties. The current spike in prices is all sizzle with no steak.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Here is an update on the prices of DBC, an ETF that tracks a basket of commodities and DBA, an ETF that follows agricultural commodities and the yield on a 30 Year Treasury Bond. In past updates I mentioned that if inflation was taken seriously, bond investors would go on strike and interest rates rise to protect bond buyers from future inflation. Instead, interest rates on longer term bonds fell again with the biggest drop coming after the Fed signaled its intention to begin tapering some time next year. Commodities prices also declined but the spreads increased! One of these market sectors is going to be wrong.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TLT follows longer dated Treasury Bonds. It jumped (interest rates down) after the Fed statement. If the Fed is going to tighten next year, why would bonds rally? The theory is that the Fed's action will push short term rates higher and that will slow economic activity and lessen the chance for runaway inflation. Also, in previous periods of Fed tightening over the last 30 years, bonds did well and stocks did poorly. Every portfolio manager has at his finger tips data on every past Fed move and the market's response. It is just like a wrestler who learns that if your opponent does X you do Y to counter it. Given all the historical information, there is no need for creative thinking. XLF is the biggest ETF following the financial sector. Banks were suppose to be one of the big future inflation winners. Banks rent money to others. When interest rates go up they can charge more for loans and make a profit by borrowing short term at rates close to zero and lending on a longer term basis at higher rates. Last week, the rate structure moved in the opposite direction with longer rates declining relative to shorter term rates. Banks and other lending institutions hit the skids.

 

 

 

 

 

 

In April I wrote that many commodities were hitting traditional seasonal peaks. If history repeated they would go through a soft spell. Given the investor commitment to commodities as an asset class, a short term decline could become more serious because of the lopsided positioning of futures players. That appears to be taking place. Here is an update on some seasonal charts. Sentimentrader.com, a subscription website does on excellent job of presenting this data graphically.

 

 

 

 

 

 

 

 

 

 

 

On the left is a picture of copper's seasonal tendencies and on the right a weekly bar chart of copper prices. July is often a good month for copper with the trend peaking out in early August.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is the seasonality graph for corn and on the right an ETF that tracks corn prices. The Midwest corn belt had decent corn growing weather lately putting a damper on fears of a bad crop on top of strong demand from China. Futures traders are loaded up on corn. If the seasonal tendency holds for this year there will be big losses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Soybeans tend to see some summer weakness that begins in July. It looks like it started early this year. July is tasseling time for corn when the kernels form and August is pod filling season for soybeans. Both need decent rain over the next 9 weeks and that is not guaranteed. There are many years when the prices of both crops do not follow seasonal patterns but if they do, commodities traders will be punished.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil prices tend to rise a bit into the fall but gasoline often sees its best levels as summer driving season peaks in July. On the right is a chart of Marathon Petroleum, an owner of oil refineries in the U.S. Profitability for oil refiners depends on the difference between the price of crude that they buy and what they can get for selling gasoline and diesel fuel. Gas demand is back with things reopening. We will have to see if this year's price pattern bucks the seasonal trend.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The sell off in gold was the unkindest cut of all. How many articles have you read or pundits have you watched on TV who encouraged investors to buy gold? All it took was a Fed statement talking about maybe tapering in another year to knock it down $100, closing the week below its 200 day moving average.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The simple RSI momentum oscillator is approaching "over sold" levels on the daily chart displayed on the left. The RSI reading on a weekly chart is in neutral. The best buying points in gold coincided with lower readings on the weekly picture.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I subscribe to Cyclesman.com, a website that tracks periodic ups and downs in some markets. Their daily cycle low is due at the end of June to first week in July. On the left is their weekly cycle projection. This cycle averages 23 weeks, low to low with 70% falling within a few weeks plus or minus of the 23 week ideal. It is scheduled for mid-August. On the right is Sentimentrader's seasonal graph for gold. July tends to be a good month. The seasonal pattern perks up at around the same time as Cyclesman's daily cycle low timing band in early July.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Every trader who studied chart patterns is watching silver to see if it formed the infamous "contracting triangle." This is a series of five moves of decreasing amplitude that lead to a final surge in the direction of the previous trend then a reversal. In metals, that final surge can be exceptionally large. The seasonal upturn in silver happens at the end of June. This could be a fun market. A sell off below $24 would invalidate the triangle interpretation and most likely result in a waterfall decline!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coeur and Hecla are two silver mining stocks that will do well if the triangle pattern works out or get killed if it doesn't! Neither sold off that much when silver hit the skids late last week. I would like to see more of a pull back before buying.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platinum and palladium sold off like other commodities. Platinum is back to 2015 prices. Palladium did a lot better over the last year but hasn't gained much in the last 5 months. Seasonal tendencies in both metals are down into the fall!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Longer term readers know that I was looking for a trading range market in the Dollar. So far, it is following the script. In past periods of Fed tapering the Dollar rallied. On a shorter term basis it is "over bought" as shown by the red simple RSI momentum oscillator on the right side graph. Notice a yellow oval that coincides with one of its previous periods of being "over bought." Instead of signaling a pullback, the thrust upward marked the kickoff to a major move higher. I tend to think that in our current situation we will pull back a bit in the coming week or so. Remember - The Fed can change their intentions at any time. If economic data continues to disappoint, the Fed could announce a stop to any tapering! It is as simple as that.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Dow Jones Industrial Average got hammered last week and was the weakest of the major averages. It includes major "re-flation" beneficiaries that don't do well when the Fed is putting on the brakes. The left side graph shows the daily closing price with a simple RSI oscillator below. Previous oscillator readings this low were at or within a few days of a low. Friday weakness tends to have early Monday follow through. On the right is a two year graph with a slow stochastic oscillator below. Some of the past oscillator readings this low were at bottoms but notice the March 2020 period. Even after the slow stochastic reading collapsed, the Dow sold off for another week!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The S&P 500 has a mix of cyclicals and tech stocks favored in a deflationary environment so it did better than the Dow Jones. At week end it sold off to just below its 50 day moving average, a level that proved to be support over the last year. If it can't hold the 50 day it will be evidence that something larger is changing.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Smaller company stocks such as those in the Russell 2000 and the S&P 600 traded sideways over the last few months. Smaller businesses will be harder hit with labor costs and parts shortages than larger companies. If your company sells something that is back ordered, will your biggest customers' orders get filled first or will it be the smaller guys? Producer prices are rising faster than consumer prices which squeezes profitability. The prices of these stocks were bid way up last fall amid the re-opening optimism. They still look expensive.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The NASDAQ 100 spiked higher after the Fed statement. Historical statistics say that if interest rates and inflation are headed higher, tech is a loser. If rates are coming down and inflation is tame, buy tech. There is no underlying change in the fundamentals of the group except that they now have a big target on their backs with the government talking about breaking them up! Note the level of the slow stochastic oscillator on the two year chart. It is at the opposite extreme of the oscillator on the Dow Jones Industrials graph. The NASDAQ 100 could be forming a wedge type top. It would look perfect if it followed the red lines on the left side graph.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apple might give the best clue for where the stock market is headed. From a chart pattern perspective there is no solid case for higher or lower prices. The left side graph has bearish markings. It sees an initial change of trend, five wave decline followed by a typical corrective pattern then the beginning of another sell off. A break of $123 will confirm the kickoff to lower prices. The right side graph pictures Apple making a pattern similar to silver's. Chart perfection would call for one last pull back toward the lower trend line then a final manic surge to new highs before a big reversal. Watch Apple!

 

 

 

 

 

 

This is another Sentimentrader chart. The black line shows the percent allocation of household assets to stocks. The green area shows the return ten years later. In 2000 investors allocated 32.5% of their assets to stocks. Ten years later their return from the 2000 period was barely positive following a dip into negative territory. A similar thing happened ten years after the 1966 peak allocation. Now we are above either of those levels. The point of the article is that people load up on stocks after a big run higher and tend to suffer low returns or losses over the next decade. History is worth watching.

Best guess for the next two weeks -

Stocks - I am looking for a bounce following a lower opening next week. I expect it to fail with lower prices headed into the 4th of July. Cyclesman.com has a weekly cycle low timing band at the beginning of July. The classic pattern would be for a July rally followed by another sell off into Labor Day.

Gold and Silver - I expect something similar with the metals too. The seasonal patterns in both turn up in July.

Bonds - Short term they are over bought. I expect a pull back starting next week. Remember - no one knows if inflation is "transitory" or if it is here to stay for a while. The Fed was clueless about the housing bubble in 2006 and will say anything to keep rates down.

Dollar - I am looking for a short term top in the next week, a pull back then another rally ending in early July around the seasonal low points for gold and silver.

 

 

 

 

 

 

Unneeded commentary - Generac anxiety.

Did you buy a home generator yet? Generac is the biggest vendor. Last week I was in Texas, Oklahoma and New Mexico. They had a freeze in February and many homes and businesses had no electricity or natural gas for days. Lots of people there are buying generators and I don't blame them. The thing is that people in places where the electricity is reliable feel the same way. The urge to buy started way before February. The upward thrust really started right around the time that states began closing and governors, mayors and other petty tyrants began flexing their emergency powers muscles to shut things down, shut people in and shut us up. The stock looks like it could top out at any time after such an extreme move. I am going to refer to the current period as the months of Generac anxiety, a time when you feel you can't trust things you have relied on for years to still function like they should.

I took my third post-lock-down trip last week. Everyone I met has a sense of unease about what is coming out of Washington, both domestically and internationally, Generac anxiety. My take away from discussions with other people is optimistic. As long as we were masked, social distanced and grounded, we had no way to share our thoughts and feelings with others except by electronic communication and social media. Most of us have learned to limit our comments via phone and on line. If we haven't, Facebook, Twitter and others will do it for us. Now that we are face to face we are finding that there are many others who feel the same way. My fear is that the authorities will try and find a new reason to separate us again before the next U.S. election.

Best of Luck,

DBE