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 August 1st, 2020

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 - 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.

Worries for this week.

 

 

 

 

 

 

 

 

 

 

Both these pictures are from the Zerohedge.com website. Last week the latest reading of consumer confidence showed a decline in expectations after an increase the previous couple of months. There was an improvement in people's feelings about their Present Situation but we act based on our beliefs about the future. First time unemployment claims were a bit higher than expected with continuing claims close to 32 million. These are not the numbers one would expect to see with a stock market near its all time high. One could argue that it can only get better from here and that equities are showing confidence in the future.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The social distancing tech stocks had good earnings with Apple and Amazon leading the way. Consumers bought IPads, Macs and IPhones which allow them to work remotely and for their kids to take classes at home. Amazon's access to anything you could possibly want (legally at least) with quick delivery is custom made for a contagious world. After Apple's blow out numbers Thursday night the stock surged to record highs on Friday. They also announced a four for one stock split, something that is interpreted positively when a stock is in an uptrend. Amazon's earnings moved the stock back toward its previous peak but not above it.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Two companies that make things associated with economic expansion and increased employment were not as lucky. 3Ms earnings were poor and worse than expected. Caterpillar's earnings were better than expected and at first the stock rallied. Once investors realized that the numbers were due to quick cost cutting (layoffs), and that world wide demand for Caterpillar's equipment fell drastically (graph from zerohedge.com on the right), the stock sold off.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This divide can be seen in the performance of companies that allow us to do things from home versus economic strength like companies in the XLI SPDR ETF. It isn't all tech versus industrials. Some consumer goods and home improvement companies are also doing well. Sherwin Williams, the paint maker had excellent earnings. Earlier in the summer I had some carpentry work done on the outside of our house replacing rotted wood around a few of our windows. The contractor told me that he was very busy. Now that people are home every day they notice things that need repair or upgrading around their houses, condos and apartments. Used cars sold on-line are in demand as former mass transit users decide they will not return to trains and buses. The list of winners and losers will fill out but the weakness in basic industries warns us that even if the virus did not yet endanger our jobs, if there is no return to somewhat normal life and employment, the economic weakness will eventually make its way up the supply chain.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On Friday, after the great Tech earnings (not so much for Alphabet however), the market opened higher then sold off. The NASDAQ 100 was in positive territory all day long thanks to Apple and Amazon. Interestingly enough it didn't take out its recent high. On the NASDAQ, decliners led advancing shares and this was also true for the New York Stock Exchange with volume on declining shares ahead of winners. A late day rally put most market measurements into the green by the close.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With fewer of the stay at home winners in its make up the Dow Jones Industrial Average was flat on the week and the small Cap Russell 2000 ended the five days on the down side and close to an uptrend line that traders will watch.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The NYSE Composite is lagging the popular market measurements. If you read any investment news letters or follow financial media you probably ran into the graph on the right that I found on Zerohedge. It shows that most of the recent S&P 500 gains were concentrated in the five big tech winners while the remaining 495 issues were left behind. Often this picture is found next to one that shows the last time this occurred and that was at the dot.com bubble top in 2000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Talk about the U.S. Dollar dominated financial news last week. On the left is a chart of the Green Back with letters and lines drawn in showing that the pattern is similar to that of the stock market from its 2018 January high into the March low of this spring. Of course, this is conjecture and something else could unfold. The graph on the right shows the Dollar Index's daily close with a simple RSI oscillator below. It is as "over sold" as it gets. On Friday, the intra-day low for the Dollar was 92.55 and it closed at 93.42, quite a rebound. It could be that the elastic band to the down side is about to snap back!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Traders and hedge funds continued their speculative binge against the Dollar as shown by the futures positioning of Dollar hedgers who take the other side of that trade. Note what happened with the Dollar after similar episodes as shown by the Sentimentrader graph on the left. The Dollar Index is weighted so that moves in the Euro effect its value the most followed by the Yen. The Euro had a very good run last month (Barchart.com on the right). Speculators are loaded up with Euro Futures contracts. The odd thing is that the reasons sited by those calling for a crash in the Dollar are doubly true for the Euro zone and Japan!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The graph of October Gold Futures from the Barchart.com web site has the path of the Euro against the Dollar along with it in blue. There are a lot of sophisticated reasons given for gold's strength that you can find on investment web sites. The correlation to the Euro is striking. It raises the question: If the Dollar is about to snap back a bit against the Euro will gold also take a hit? On the right is another Sentimentrader.com picture showing the daily closing price of gold in NY and their proprietary sentiment measure below in blue. Previous moves above the red line were close to tops in gold. In 2011 it ignored sentiment for a short period of time and plowed upward but eventually it gave back all those gains plus some. If you are an investor don't you want to buy when everyone else hates it and sell when the world thinks it "has to" go higher?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The left side chart shows the daily closing price of gold and a simple RSI momentum oscillator below. The RSI finish the week at .87. Anything over .80 is considered "over bought." A number this high is not necessarily a sell signal. It tells you that your odds of making more money on the up side are likely limited for now. The right side shows the weekly closing price of gold in NY and a simple four week rate of change oscillator below. It closed at 11.2%. Over the last 13 years there were a handful of readings around 11% and higher. It is unusual for gold to have this kind of rapid move over a four week stretch. Most likely, even if it has more upside it will take place at a lesser rate of change.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Barchart.com graph on the left shows silver with the Euro in blue. Last week the contracting form between the red lines hinted at an additional pop in the metal. As with gold note the correlation to the Euro. On the right is a chart showing the weekly closing price of silver, its one year moving average and the price of silver minus its one year moving average. The red circles note other readings similar to now. The only one that was higher was at the 2011 top. If you are a true believer in the metal you are looking for something similar. If you are a cautious investor you are happy for the gains you have now.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platinum and palladium enjoyed gains along with the other precious metals. If the Dollar rebounds, both are likely to sell off along with gold and silver.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IEF tracks the path of 10 year United States Treasury Notes. Early in the week there were auctions of two and five year notes that did not go that well. The yields were at record lows but demand was lacking. Later in the week a longer dated Note auction went extremely well with robust demand. Interest rates on all U.S. Government paper are at historical lows. LQD tracks high grade corporate bonds and they stayed at record levels. Both these markets make no sense. Due to lack of tax revenue and earnings, the government and corporations are borrowing heavily to stay afloat. In a normal market an increase in demand should bring higher costs (higher interest rates to buyers). The opposite is taking place now. In 1999 investors were snatching up dot.com companies that did not charge users and had no real plan for making money. It made no sense to me just as bonds don't make sense now. It lasted for a while then crashed.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The two biggest junk bond ETFs are JNK and HGY. Both are rallying during this time of economic contraction. Bulls will say that within a year things are going to return to normal and current buyers of these lower quality, high yield and high risk securities will be rewarded. But the current price level of both suggests that junk bonds are already priced to perfection and do not discount the possible risks posed by continued lock downs and social distancing. On the right is a Sentimentrader.com graph showing their proprietary sentiment measurement on HGY, one of the funds. It is at the high end of its range. Remember, you buy when they hate 'em. You sell when they think they can only go higher.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WTI Crude prices (domestic USA) were amazingly stable over the month. Last week's inventory report featured a large draw down in crude but a build in the products, gasoline and diesel. The right side graph from the Sentimentrader.com site shows that total crude stockpiles are hovering near their highs. Chevron's earnings were dismal and the energy complex sold off on Friday in response.

 

 

 

 

 

 

Crop prices were up last week with coffee doing particularly well. DBA tracks a basket of crop prices. Warning: DBA is my only long term investment so I am talking my book. I check the heritage grain web site for news on U.S. crops. Here is what it said Friday morning. The underlines are mine.

Ag Market Commentary
BRUG - Fri Jul 31, 7:09AM CDT
Corn futures are fractionally higher this morning. Nearby contracts closed UNCH to 1/4 cents higher on Thursday after a morning rally fizzled. From the weekly Export Sales report, old crop corn bookings had net reductions of 29,321 MT. Colombia, Japan, and Taiwan were net buyers, but Mexican and Canadian reductions had offset. New crop forward sales from the week ending July 23 were 638,714 MT, which was 392% above new crop sales from the same week last year. Total MY new crop corn forward sales were 8.328 MMT through July 23, which is 115% higher yr/yr. Of that total, China has booked 3.78 MMT, their largest forward purchases on record! The weekly Chinese auction of reserve inventory was 100% subscribed, at an average price of $7.39 per bushel. --- provided by Brugler Marketing & Management

Soybeans are trading 4 to 5 cents higher to end the week. After falling early on Thursday, soybeans came back to post 2 to 3 /12 cent gains in the from months, with exception to nearby Aug. They gained support from product values, as meal futures were up $3.30/ton, with bean oil futures up 53 points. USDA’s weekly Export Sales report showed bean sales from the week ending July 23 at 257,828 MT. That was just below expectations, but still 80% higher yr/yr. New crop soybean sales were above estimates and 10x higher than the same week last year, with a huge 3.344 MMT sold on the week. Of that total, 46% of the new crop sales were already known via mandatory announcements. Total soybean sales of 3.6 MMT on the week were the largest single weekly sale since Feb 2012. Ahead of next Monday’s Fast & Oils report, analysts expect June soybean crush to be tallied at 177.8 mbu. That would be more than 8.3 mbu larger yr/yr if realized. Soy oil stocks are seen at 2.336 billion lbs. --- provided by Brugler Marketing & Management

Wheat futures are trading 1 to 4 cents higher this morning, with MPLS spring wheat the weakest of the three contracts. Winter wheat contracts were lower on Thursday, with spring wheat firm to 2 cents higher. KC wheat futures led the way to the downside, with 5 to 6 cent losses. CBT was down 2 to 4 cents on the day. The 7-day QPF shows little to no precipice from MN to MT over the next week, helping to firm the HRS market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Both these graphs show the weekly price of Soybeans on U.S. exchanges. The right side chart adds the percentage gain or loss in the Dollar Index to the soybean price. Even though the left side chart shows beans moving a bit higher, to non-Dollar buyers they got a bit less expensive because the Dollar declined in value. A Dollar rebound will be a test for DBA and grain sales from the United States. In other words, are we seeing buying interest just because the Dollar is cheap and if the Dollar strengthens will buyers go to Brazil and Argentina instead?

 

 

 

 

 

 

 

Strategy for next week -

Stocks - Government transfer payments are now 25% of all personal income and a chunk of that, the $600 Federal unemployment weekly check is expiring. Analysts credit that weekly payment with boosting most of the May and June numbers that showed the consumer rebounding. Both sides are meeting this weekend to try and reach some kind of compromise but it doesn't look good. If there are resumed payouts but at a lower amount will it be enough to keep the stock market up? When faced with economic uncertainty, people hoard and that is not good for business. Above is a graph showing close to 32 million people unemployed. This is frightening. Last week I showed a level on the Dow Jones Industrial Average (26,297) that if crossed would imply lower prices. It was penetrated last week so I am staying short stocks.

Bonds - I get the feeling that something is about to break in this market. I won't touch them.

Gold and silver - The Dollar should rebound some against the Euro. Given the strong correlation between precious metals and the Euro lately along with the rampant bullish sentiment toward silver and gold I am expecting a sell off in the metals. Last week I wrote that bullish articles on Drudge are killers for gold. Druge featured one last week.

DBA and crop prices - So far, so good. If the Dollar rebounds will it end big foreign buys of our grains or is there a brewing shortage that is just in its first stages? The good thing about crop prices is that no one is worried or talking about them. When you watch Bloomberg, CNBC or Fox Business early in the morning how often do they feature an analysts talking about corn and soybean prices, acreage planted and yields per acre? Never.

Unneeded commentary - It is my theory that people have energy to burn and a natural ambition to do something. In normal times that goes into work, getting to work, exercise and recreation. If you are working from home with restricted activities, have you become more passionate about a political cause, social justice cause (one way or the other), stocks, gold and silver? Are you trading options which are leveraged, temporary contracts making you an instant winner or loser? There are viral videos showing all kinds of wild things people are dong to burn off that energy. Some are very creative such as amazing backyard recreational things parents and grandparents are building for their kids. Others show people doing foolish things resulting in injury and some feature violence and anger. We did not have the most successful economy in the world without most of the energy of those 32 million who are now unemployed working at something every day. Without steady work and the daily direction it brings to life I worry about the future direction of that energy and the willingness of some to channel it for personal power at the expense of the rest of us.

Best of Luck

DBE