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 January 8th, 2022

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, 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.

 

 

 

 

 

Starting the year, Wall St. analysts were universally bullish, calling for another 5% gain in the S&P 500. They anticipated good consumer spending and a quick end to COVID due to the rapid spread of Omicron, a less lethal version of the virus. By the end of the week the focus shifted to higher interest rates, the Fed tapering faster than expected, the consequences of higher interest rates on a deeply indebted world and sky high asset prices pumped up by ultra cheap money, soon to be withdrawn from the system.

 

 

 

 

 

 

 

 

 

 

 

 

Data -

 

 

 

 

 

 

 

 

 

 

 

Friday's big jobs number was a dud! The consensus was for a gain of 422,000 jobs. Whisper numbers were higher after the ADP report earlier in the week hinted at 500,000 plus. I heard one optimistic pundit suggest that a number closer to one million could be possible. Instead the establishment survey tally was 199,000. Analysts quickly noted that the Household survey was 651,000 and that December's seasonal adjustment subtracted over 100,000 from the raw data. What concerned the markets was the 4.7% gain in wages with leisure and hospitality workers getting raises to keep them on the job.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Factory orders were up 1.6% month over month, a decent number and in line with the past 9 readings. The ISM Service sector survey turned down as the latest virus wave deterred people from doing face to face business. Bulls will note that last year, cases peaked in January and hope that this year will follow 2021's seasonal pattern.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Late in the week, the Fed released the latest tally on credit card use. Consumer Credit jumped a record amount in November toward 40 Billion Dollars! Bulls will argue that this is actually positive and is in line with other behaviors such as people leaving jobs by the millions for better paying positions. It is a sign of confidence and optimism toward the future. Bears will make the opposite point noting that surveys of consumer confidence are near rock bottom. They will bolster their argument with the right side graph that tracks personal savings. Stimulus checks increased savings last year and pumped up retail spending. Now, middle class Americans have depleted those savings and are maintaining their lifestyles by borrowing the most expensive way available; credit cards. That excess savings was suppose to fuel gains in 2022. It is gone already.

 

 

 

 

 

 

Aside from stocks, what other markets could big big movers in 2022. Here are two picks.

 

 

 

 

 

 

 

 

 

 

 

Despite constant predictions of a collapse, the Dollar trended higher through much of 2021. Traders around the world are loading up on Dollar futures and forwards with near record positions, confident that the Dollar will continue its upward path against a basket of currencies weighted mostly against the Euro and the Yen. The shorter term graph on the right shows that it has been trading in a sideways pattern over the last three months. My dream trade is that it breaks to the upside for one final pop before reversing. The labeling on the left side chart infers that the Dollar rally since last year at about this time is a counter trend move that should fall short of the previous top. The Dollar often shows seasonal strength into the first week of February. With traders convinced of higher prices, a break of the lower red line on the right side graph should unleash a wave of selling.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Above are daily (left) and weekly charts of gold in NY. Cyclesman, an excelling service to which I subscribe, tracks daily cycles and weekly cycles, low to low. Next week starts a "timing band" for both with the theoretical low on the longer term weekly cycle hitting the week of January 21st. Past inflection points of the shorter daily cycle were dramatic with last summer's giving us a $100 dollar drop on a Sunday night in Asia. If the Dollar breaks to the upside of its trading range for one last pop it could be the catalyst for a spike lower then reversal in gold, my fantasy trade for 2022.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Silver tends to follow gold with sometimes greater and other times lesser enthusiasm. Another break of the green line could convince silver bulls to quit on the metal, just the kind of action that makes a good buying point. Previous updates showed seasonal tendency graphs on both platinum and palladium. These metals often have their best upside action in January and February. The right side graph of both metals' daily closing price shows that they rallied a bit lately.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedgers in both metals are building sizable long positions with speculators aggressively shorting them. Palladium in particular is at an extreme in trader positioning and ripe for a short covering rally. If I needed the metal for my operations and had not yet bought enough I would be nervous.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Copper is a China story and there is a lot of debate among analysts regarding China's economic future. Their economy is extremely leveraged and the government is trying to let the air out of their property bubble without sparking a collapse. Copper is betting that things will be OK. Bulls are hoping that the metal is making a coiling pattern for another move higher into the second half of 2022. On the right is a graph that tells you if you were better off in gold or the S&P 500 (minus dividends) on a daily basis. Stocks are still winning but the trend is flattening out. A betting person would look at the graph and anticipate a rally in gold relative to stocks.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Last year, people asked why investors were willing to lend the U.S. money at such low rates while inflation was destroying the purchasing power of cash at four times the rate paid on shorter dated paper. The answer was that the Fed was rigging the market. Now that they are letting up, rates are rising in the open market. Five year note rates more than doubled. I drew red lines on the five year rate graph because similar patterns in stocks led to a spike up and reversal. The right side graph of ten year rates shows that they bettered last March's high.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rates on longer dated government paper such as the 30 year bond also increased but much less than rates on shorter dated paper. Some of the upward pressure on rates last week was from huge corporate debt issuers who sold short T bond and T note futures to hedge interest rates as they prepare to issue billions of dollars worth of bonds. What is interesting is that corporate issuers know that the 5,000 year low in rates is temporary so they are borrowing all that they can. Don't buyers of this debt realize that they are getting taken advantage of? Investors, desperate for yield were willing to ignore risks over the last few years. Junk bonds out performed safer securities over the last few years but are very vulnerable in a rising rate environment. A break of the red line will have most buyers sitting on a loss.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is an update of KBWB, an ETF that tracks banks and the interest rate on a U.S. ten year T note. The last update highlighted the correlation. When interest rates rise, banks can rent money at a higher percent. As shown by the credit card borrowing graph above, consumers are loading up on the most expensive debt just as rates are rising. The credit card business is one of the biggest profit generators for banks because of the outrageous rates of interest they charge on balances. The other big winner last week was the energy sector with oil rallying once again and cold weather settling in over the U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil is headed toward $80 again with multiple analysts calling for $100 plus per barrel oil based on underinvestment in future supplies. Until we get closer to the previous highs the move will look like an upward correction that is currently "over bought." The same goes for gasoline futures. Traders are sure that Omicron is the end of COVID and that happy days are close to being here again. By the end of the year, U.S. commercial oil inventories were around 8% below the five year average for the end of December. Gasoline inventories were only 4% below while diesel and heating oil were down 16%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Much of the world's wealth is tied up in Apple Computer. It's capitalization is higher than the GDP of many countries and it is in every institutional portfolio. Bears will say that it just ended its parabolic rise. Bulls will look for a "flat" correction with a sell off below $168 followed by another rally phase. Remember, Apple is sitting on billions in cash. As rates rise, what they earn on that cash does also.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Microsoft has a similar trajectory and claims nearly the same amount of the world's assets. Whatever way these two company go, the investing world will follow.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

While Apple and Microsoft were making new highs, roughly 35% of NASDAQ stocks lost half their value. That is why the NASDAQ 100 is off its highs a bit even though Apple and Microsoft are heavily weighted in its price. Bulls will note that in some past cycles this amount of damage to issues in the index marked a low. Bears will say that this kind of divergence among the performance of stocks in the index is a sign of weakness with FANG stocks the last holdout before a major drop. Late in the week the index closed in on two previous lows. Bulls will hope it rallies from here. The Russell 2000 is a small-cap index. It was the poster child of the re-opening trade back when "vaccines" were believed to be effective. Smaller companies are thought to be more adversely effected by higher interest rates and inflation. Bears are looking for an eventual break of the red support line.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bears are ready to proclaim a major stock market top. The supports behind the bull run are fading. The economy is slowing from last year's stimulus powered binge. Earning's comparisons will be more difficult this year than in 1921. Interest rates are rising. One of the biggest factors in the performance of big company stocks over the last five years was corporate buybacks. Most of the big names borrowed at low rates and used that money to buy back shares, reducing their float and making earnings per share look much better. If rates rise they will have to cut back on borrowing. Share buy backs will not be as large or frequent. Lastly, the number of warm bodies able to work is topping out with its biggest segment, baby boomers retiring. It is hard to expand the economy without an expanding work force. Bulls will site the upward momentum in stocks over the last quarter. In the S&P 500 most issues advanced in the last three months and are trading above major moving averages. In past cycles this kind of performance had follow through into the next quarter and year. They will look for the 4,400 level to hold on any pull back and for an early year stumble to launch the next leg higher.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Last week the Dow Jones Industrials did better than other market measurements due to financials and energy. Late December was straight up with strong momentum. Bulls will see last weeks shallow pull back as a normal pause before higher prices. Bears will look at the long expanding wedge formation and see it as a topping type pattern. A break of the lower green line, 2,000 points below Friday's close will confirm the onset of a bear market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seventy percent of our economy is consumer driven. This year, people will have to earn most of what they spend unless another helicopter money bill is passed. A chart above shows that people have run through their savings and bought a lot of things on credit, an unsustainable trend. Seeing how Amazon and Wal-Mart do could be one of the best guides to 2022.

 

 

 

 

 

 

Last time I compared the current year to the end of 1980 and early 1981. To the left is what happened for the rest of that year. Stocks topped the first week of January, fell into mid February then rallied into late April. In the 1970s oil stocks did very well and by the early 80s they were heavily weighted in the major averages. The April high was driven by the oil sector with other industry groups lagging. That proved to be the high for energy for that cycle. Oil stocks then joined everything else on the down side.

Best Guesses -

Stocks - If nothing explodes or gets invaded over the weekend I am looking for an early in the week bounce followed by more selling.

Bonds - Oversold enough for a bounce then lower prices.

Dollar - I am hoping that there is one more pop to the upside that will set the Dollar up for a major change of trend to the down side.

Gold - With both the daily and weekly cycle lows due I am watching for a spike low as seen at previous cycle inflection points. I will view it as a buying opportunity.

Best of Luck,

DBE