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 October 16th, 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, 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.

Usually, I write on Saturday and do a final edit on Sunday when I find multiple mistakes. This week I have to do everything on Saturday so please forgive the errors.

Hard data -

 

 

 

 

 

 

 

 

 

 

 

Last week, new claims for unemployment benefits hit a post COVID low at 293,000! The number of people on some kind of job related government assistance fell below four million. Both statistics are great news. Analysts expected the number of unfilled jobs to increase again last month but they went down a bit instead. I still see Help Wanted signs everywhere but these economic releases are an indication that workers are returning.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The left side graph shows producer price increases relative to consumer price gains. When the bars are red it means that business are experiencing higher input costs that they are not yet able to pass along to customers. This decreases their profits. On the right is a very popular graph among those who follow inflation statistics. The government uses the orange line as part of their monthly inflation calculations for the housing market. The blue line is the real world increase in rents. Over time, the orange line tends to follow the blue. Until it catches up, the government can claim that inflation is not that high even though rents are the largest single monthly expense for millions of Americans. Critics point out that the government uses a number of "adjustments" that hide real world price increases experienced by consumers. This is one of the most obvious.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ever since last spring's stimulus checks ran out, retail sales were subdued. The September number was slightly higher than expected. Analysts quickly attributed it to a stronger economy. Every day, when listening to financial news, you hear warnings about empty shelves and no toys for Christmas and how you had better buy now. My wife already bought canned Thanksgiving fixings! My guess is that millions of people are heeding this advice and doing the same and that is keeping the retail sales number positive. On the right is Friday's University of Michigan Sentiment Survey. It is still near lows last seen 8 years ago with most respondents worried about higher prices for things they need to buy.

 

 

 

 

 

 

Most recent updates of this website included "Seasonality" charts from Sentimentrader.com, a very good subscription service. Other financial sites include similar graphs. They are made by lining up years and years of price movements for each trading day of the year then averaging them. Why should they matter? If market movements are based on things happening in the real world, shouldn't every year be different and the market more random? Government debt and spending is at an historical record. Why should a period with no previous precedent act like markets from four decades ago? "Seasonal trends" imply that there is some kind of underlying human psychology that interacts with market prices, independent from economic reality. Isn't this metaphysics as opposed to analysis? Also, the data on the stock market was compiled during mostly rising markets. If stocks change trend from up to down do seasonal tendencies apply still? These are all good questions. This year, I read more reference to "Seasonal Trends", particularly stock market trends than ever before. Sentimentrader.com is a very well read website among professional analysts and writers with their graphs used in numerous articles. Why did the stock market surge higher on Thursday? The graphs below circulated in many places over the last month.

 

 

 

 

 

 

 

 

 

 

 

Thursday was trading day 197, the ideal seasonal low for the S&P 500 and the NASDAQ. Everyone who pays attention knew it. In my last update I said that if they couldn't sell the market off too much by the middle of last week there would be another rally. The reason I wrote that were the frequent references to these graphs in things I was reading. The investing world was waiting for Thursday with fingers on the "buy" button.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Here are a couple of other Sentimentrader.com seasonality graphs familiar to traders. Gold rallied right on time then hit the skids on Friday on schedule. The Dollar did the same but in the opposite direction. Will they continue to follow seasonal tendencies? Who knows but I have to believe that at times, history becomes a self fulfilling kind of thing, at least for a few days.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Here are two more. Everyone is talking about higher energy prices with lots of predictions of $100 a barrel oil. The seasonal tendency graph differs. TLT tracks longer dated U.S. Government bonds. They sold off right on schedule then bounced a bit on Thursday. The writers at Sentimentrader always warn readers that markets do not have to follow seasonal tendencies and that seasonality graphs should be one input into a trader's thought process when making a decision. If you look at specific markets you can find a number of years when prices went against typical seasonal patterns. The reason I am including the above six examples is that for some reason, traders are more focused than ever on this data and on Thursday they acted on it in a big way.

 

 

 

 

 

"Stagflation" is the word of the week. You can't avoid it if you listen to any financial commentary and it is usually followed by "supply chain." So what is getting more expensive?

 

 

 

 

 

 

 

 

 

 

 

DRAM and NAND are two types of memory chips. You hear a lot about the chip shortage with most analysts saying it will last into 2022. A recent Zerohedge.com article included these two charts of chip prices. Things don't go down in price unless supply conditions are loosening. Remember, when there is a shortage, purchasing people double and triple order things causing the shortage to be worse and prices to accelerate higher. When suppliers begin to deliver, buyers suddenly have more than they need. In the case of electronic things, innovation happens so quickly that sometimes the needed parts ordered a few months ago are outdated. Shortages are followed by gluts. The Philadelphia Stock Exchange is where you find the SOX Index of semiconductor companies. It hit its high of 3484.19 on September 16th and traded at around 3306 on Friday.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The focus of current inflation is in the energy sector. "Climate Change" is really global warming renamed because the computer model predicted warming due to CO2 never materialized. It is now a religion with zealots everywhere claiming that we will be extinct unless we "act now," whatever that means. Every extra warm or cold week is evidence for the coming catastrophe and each storm is referred to as "extreme weather." Joe Bastardi who works at WeatherBell Analytics frequently points to real data collected over the last century that shows that we are living in a period or relatively benign weather with fewer intense storms or days over 100 degrees in major northern cities than in many decades of the 20th century. Last spring we witnessed one of the mildest tornado seasons ever. Throughout human history, weather was associated with Divine favor or punishment and the need to sacrifice or repent when bad weather hit. This generation's weather priests convinced governments to turn away from fossil fuel and nuclear power production in favor of wind and solar that by definition are not dependable, are expensive and need government subsidies to be affordable. In Europe in particular we are seeing the results. Europe depends on Natural Gas piped in from Russia. Russia is reducing exports to Europe to refill its own tanks, depleted by a very cold winter last year as they prepare for what could be another very cold winter season. Today, I read an article saying that after they top off their tanks they will resume exports to Europe. In the mean time, zinc and aluminum smelters are shutting down until energy prices return to better levels. Metals prices are soaring.

China used massive monetary stimulus to pump up their economy after COVID and much of the U.S. stimulus ended up sparking demand for Chinese goods. It is estimated that their demand for energy increased by 11% in the first half of 2021. Around 70% of the electricity in China is produced in coal fired plants. The government controls the price of electricity and domestic coal and they suppressed both to keep consumers happy. With artificially low prices, coal mines curtailed production. Electric power plants used existing inventories of coal rather than produce electricity with much more expensive newly imported coal while not being able to raise the price of electricity to pay for that coal. The net result is a shortage of coal with brown outs and blackouts in 60% of the country. Coal prices in China are moving even higher this weekend due to cold air moving into the norther part of the country.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Crude Oil prices rose to $82 last week. Momentum oscillators are all in "over bought" territory. Domestic inventories of crude oil rose for a third week with production fully recovered from last month's storms. They are only 6% below the five year average for this time of the year. Clearly, there is no great shortage of Crude Oil. Gasoline inventories in the United States are only around 2% below the five year average so again, no real shortage. Even Natural Gas inventories are only 4.9% below their five year average versus Europe with levels around 15% below. The U.S. is in good shape.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand for Heating Oil and Diesel (same market as Heating Oil) is strong in anticipation of a cold winter. I live near Boston, ground zero for heating oil consumption. It is unseasonably warm. A cold front is coming through this weekend but night time temperatures will only go down into the high 40s after the front. Heating Oil and Diesel domestic inventories are around 9% below their five year average for this time of the year. Note that heating oil futures made new highs today then closed near their low price for the session. On the right is a graph of per-container shipping rates courtesy of an article on the Zerohedge.com website. Prices from Asia dipped a little because of shippers unable to deliver orders for export, not because of lack of U.S. demand. In the media there is a lot of condemnation of U.S. companies that moved their manufacturing to China to cash in on cheap labor, laying off their U.S. employees then importing those cheaply made goods to sell to the same people they fired. This only works if the shipping is dependable and the costs are low. Nothing will bring manufacturing back to the U.S. faster than high shipping rates.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Two weeks ago, the sideways trading pattern in gold looked like it would lead to an upside breakout. We got two good days then the metal dropped back into its trading range on Friday. The green lines and lettering on the chart above show a bullish interpretation of the downs and ups over the last five months. The theory is that gold is forming a contracting triangle that will lead to final surge above $2,000. A move below the "c" point will invalidate the bullish form. The right side graph tells you if you were better off in gold or the S&P 500. It poked above its trend line for a few days then fell below it again on Friday.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Silver followed gold's path but in a very muted fashion. The a,b,c markings assume that silver finished a sideways correction from the red 1 point. Another sell off below the "c" point will put this positive view in jeopardy. The letters for XAU, an index of gold and silver mining companies have the same implied path that will be in doubt with a break of the "c" level.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In the last update I made a case for users to buy platinum and palladium. The left side graph shows daily trading bars for platinum. The right side chart shows weekly bars for palladium. Palladium sold off because its most visible use is in catalytic converters for cars and car production is way down due to a shortage of computer chips. The price graphs of DRAM and NAND chips could be signaling that this shortage is easing.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shortages are popping up everywhere. High electricity prices in Europe are forcing base metals smelters to shut down. Users of copper are taking delivery of the physical metal against London contracts, draining exchange warehouses. Aluminum prices soared in the last two weeks and got an extra boost from a coup in Guinea last month. Guinea has huge deposits of bauxite, the aluminum bearing rock. On Friday, the President of Metalco, the biggest U.S. producer of aluminum billet warned customers about a shortage of magnesium that is added to aluminum to strengthen it to make frames, engine blocks and metal panels. The graph on the right is the CRB BLS/U.S. Spot Raw Industrials Index. It does not include energy. It tracks the prices of a number of industrial commodities such as animal hides, tallow, burlap, print cloth, rosin and metal scraps. Everything around us costs more. Our choice as consumers is to dip into savings or borrow to keep our current level of consumption or to find a way to buy fewer things. Some analysts point to statistics showing that Americans have a record amount of savings but those Dollars are owned primarily by the top 10% of earners. The rest of us will be cutting back.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corn and soybean prices did not join the "everything higher" march yet. An agency that monitors world wide inventories of grains reported storage levels for both that are higher than previous estimates. The prices for both corn and soybeans tend to bottom in the October - November time periods. Wheat is higher and both sugar and coffee are trading near their peak levels for 2021 with sugar close to $0.20 per pound and coffee a bit above $2.00 per pound.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On Wednesday of last week, the Fed released their "minutes" of the last meeting going into more detail on their discussions. The minutes confirmed their plan to cut back on bond and mortgage backed securities purchases starting in November. Rates on longer dated securities fell while shorter dated maturities firmed leading to a flattened yield curve, something that most market watchers see as a warning for the stock market. Given all the price pressures illustrated above, why are bond buyers willing to invest money at such negligible returns? I read articles that predict a dramatic increase in rates (collapse in bond prices) as Central Banks pull back on purchases. I also read other articles showing the correlation between increased government debt over the last 40 years and a slow down in economic growth. These writers say that the recent surge in government debt will lead to an economy that is barely growing, justifying low interest rates. Both sides of the argument are compelling and equally logical.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Last week's big rally pushed the Dow Jones Industrial Average toward its all time high. Momentum oscillators finished the week in "over bought" territory. Above, I posted a number of seasonality graphs from the Sentimentrader.com website. Sentimentrader noted another pattern in a recent article. They said that if you count backwards from the end of the month so that the last trading day of the month is "1," the next to the last "2" etc., days five through 10 were some of the weakest of the month on a consistent basis. This period lines up with the next five days of trading. If, on the Dow Jones, we pull back toward the lower red trend line but don't break it by next weekend, the entire move following April's high could be a completed correction with another final up move to follow. The S&P 500 looks a bit different. Two weeks ago I used it to present the bearish interpretation. From September's lows, stocks are making an "N" type flat correction that is complete. If so then next week's volume should increase as stocks sell off and the ratio of declining stocks to advancing issues should expand dramatically.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The NASDAQ 100 is not as close to it's previous peak as the Dow Jones or S&P 500. Fans of the seasonal charts will say it is headed for new highs while those who favor "value" over "growth" will focus on big cyclicals and small capitalization stocks like those that make up the Russell 2000 Index. Last week, the Russell 2000 approached the upper boundary of its long trading range. The CFTC report on traders' futures positions showed another big jump in speculators' purchases of stock index futures, a bearish indicator.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If Apple follows chart mysticism its decline from a running triangle (a,b,c,d,e) and final burst has farther to go on the down side. Microsoft looks like it needs one final high to complete its pattern. The shares of these two companies contain a significant amount of the world's wealth so watching them is important.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The seasonal chart on the Dollar turned up last week. Will reality follow theory this year? The charts are still ambiguous. Things are bad here in the U.S. but we have our own supply of oil, natural gas and coal. Europe and Japan have to import theirs. That favors the Dollar.

 

 

 

 

 

 

This is a graph taken from econimica.blogspot.com. The writer, a "C Hamilton" posts free submissions infrequently but when he (or she) does, it is well worth reading. All of the recent posts deal with the same issue - the falling birth rate and declining number of people, age 15 to 64 in developed countries. This picture focuses on Japan which is further down the curve than other countries. The age group is important because working people in this age group drive the economy. The question is, if populations are going down and the number of working people in their prime consuming period of life is lower, why are the prices of real estate and stocks going up? Over and over he shows that amid what should be naturally declining demand for goods and services, Central Banks intervened, pumping huge quantities of money into economies to fight population based contraction and deflation. Our Fed, the European Central Bank, the Bank of Japan and the People's Bank of China are like ventilators in a COVID unit keeping the economic patient alive. In his latest post the author notes that in Japan they have been able to keep rates at zero for 20 years. The question is, can this go on forever?

In COVID units, many patients died when the ventilator was withdrawn. Will we see the same when the Fed tapers? (If they ever do.)

 

 

 

Best Guesses -

Stocks - With empty shelves and all these shortages things are looking bad in the real world. Over the past few years, buying when the news was terrible paid off every time. Will it pay off again and will the well advertised seasonal tendencies (buy in October and sell in April) rule this year? Who knows? I am looking for a pull back next week. If it is mild I will interpret it as a correction of last week's up move and look for higher prices the following week. If instead, the volume increases as do the number of stocks getting pummeled versus those advancing, I will be more bearish.

Bonds - The arguments for higher or lower interest rates are equally compelling. Current returns don't justify parking money in longer maturities. Lots of people agree with me which is why you are seeing trillions of Dollar flow through the Fed's reverse repo program where money is parked overnight for chump change.

Gold and Silver - Friday's sell off was a heart breaker for my favorite metals. Hopefully it is part of a longer term sideways move that leads to an eventual break out on the upside.

Energy Complex - We have plenty of oil and natural gas in the United States. I would not be surprised to see a short term top in Crude Oil, Gasoline and Heating Oil next week. Remember, Russia can send more Natural Gas to Europe and OPEC could decide to increase production at any time.

Other Commodities - Copper could also make a final high in the next week or so, particularly if energy prices pull back. Watch for seasonal lows in Corn and Soybeans.

Best of Luck,

DBE