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

May 25th, 2024

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.

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.

Economic numbers from the last two weeks -

 

 

 

 

 

 

 

 

 

 

 

In the first two weeks of May, some economic statistics hinted at a slow down in the U.S. economy. The "all eyes on" numbers from the week of the 13th were the Producer Price Index (left) and Consumer Price Index (right). A slightly slowing economy and lower inflation are what Wall St. wants. Producer Prices came in hotter than expected and Consumer Prices were in line with consensus forecasts in the mid 3% range. Markets were in a mood to rally no matter what. Bonds were down but stocks went up, including meme stocks.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail sales adjusted for inflation (left) were flat. Wal-Mart earnings were above expectations due to food sales while general merchandise sales were weak. In the conference call, a spokesman said that formerly upscale shoppers were now coming to Wal-Mart for lower priced foods. Target's earnings were terrible due to defections to Wal-Mart for lower prices. Last week, both companies announced price cuts across all departments. On the right is a graph of foot traffic in the NY and NJ area at fast food and casual dining restaurants. On Friday, Burger King joined McDonald's in offering $5 meals to try and revive business.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The latest readings on Manufacturing (left) and capacity utilization (right) were slightly weaker.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Both existing home sales (left) and new home sales (right) were down.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Then on Thursday of last week S&P released its latest purchasing managers survey on goods manufacturing and services (left) with both indicating future growth. The red line on the graph is the trajectory of recent hard data as opposed to surveys. The weekly jobless claims data showed a drop in jobless claims (right), backing away from the 131,000 number that gave Fed doves hope for at least two cuts this year. In our current environment, good news about the future of the economy is bad news for the markets. Bonds sold off. By Friday, Goldman Sachs altered its rate cut predictions by delaying the timing of the first cut to September.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No one really cared about the statistics shown above because NVDIA was due to release earnings after the close on the 22nd. In the days before, the volume of trading on exchanges slowed as the fate of humanity seemed to be in the balance. Their earnings were great! They have 75% margins on their state of the art chips for AI with all the big tech companies that have monopolies such as Meta, Google, Microsoft and Apple, hoping to extend their monopoly status with AI. The graph on the right from JP Morgan contrasts the earnings growth in the S&P 500 versus its growth (or non-growth) if you subtract the earnings from the "Magnificent 7." As a non-professional, I have to ask, aren't the buyers of NVIDIA's chips and software getting fleeced by paying for something with a 75% profit margin and putting most of their eggs in today's cutting edge technology? The history of all technological innovation is that it is quickly surpassed with most early adopters paying top dollar for something that can be bought for much less in the near future. In the early 1980s, Wang Word Processors were in every office. The unit was a big box with a computer, a key board and a screen that hung from hinged poles the way the light above you in a dentist chair is suspended. It replaced IBM Selectric typewriters and cost thousands of Dollars. This Wang box only did word processing but it was revolutionary because you could correct mistakes digitally and merge address files to produce as many letters as you wanted without having to have each typed and you could save the letters. Wang's earnings went through the roof. They built multiple facilities in Massachusetts and two high rise towers 20 miles north of Boston. They sponsored the biggest performing arts venue in Boston which became the Wang Center. By the mid 1980s their word processors were in landfills. PCs with word processing programs owned the market. NVDIA has a big head start on both hardware and software for AI just like Wang did and IBM Selectric typewriters before them. The stock ended the week with a little contracting triangle pattern then a thrust into the close so watch for a short term high early next week. On Friday they announced price cuts on scaled down chips they are allowed to sell in China.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AI and data center mania spread to copper over the last two weeks just as it did to Utilities which I mentioned in the previous update. On the left is a weekly graph of copper prices. To the right is a short term chart. Copper bulls say that miles of new copper wire will have to be hung to accommodate the increased energy needs of thousands of data centers planned around the world with more copper needed for all the electric cars that will replace our internal combustion vehicles as mandated by governments over then next decade. I have been reading articles about our "failing infrastructure" and the need for updated wiring for the last few decades. Investors ignored it until deep pockets big tech companies wanted more electricity. As with utilities, this is a very long term project requiring a lot of planning, permitting and money borrowing. The late week sell off might be the realization that buying copper at high prices today for demand that might not materialize for a few years is risky. A copper skeptic might look at the weekly graph and see a completed five wave advance with a fourth wave triangle leading to the final 5.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Then there is Natural Gas which spiked higher as another AI play. If utilities have to build more plants then natural gas will be a beneficiary! On Thursday morning the IEA posted the latests natural gas production and storage numbers showing more natural gas stuffed into already crowded storage. The blue line on the right side chart shows the current level relative to the range of the last five years. As recently as last month, Natural Gas producers in the Permian were paying to have natural gas piped to markets as opposed to selling it for some return. On Friday, prices hit the skids.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The idea was that NVIDA's earnings would fuel the next leg up in the bull market It didn't work out that way. It's earnings release was Wednesday night. On Thursday, tech stocks rallied on AI euphoria but the broader market sold off strongly with NYSE decliners leading advancing issues by a six to one ratio most of the day. The right side graph shows weekly bars from last October's low. The Dow closed the week below the range of the previous week's trading and below the close from two weeks ago when I thought we were close to a short term peak. One method of trading is to use "swing" highs and lows. When a market closes the week below the range of the previous week's trading it makes a swing high which is a bearish formation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The S&P 500 (upper left) had a better rebound than the Dow because of its inclusion of more NDX 100 (upper right) stocks. The Russell 2000 (directly to the right) bounced a bit on Friday too

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is the daily closing price of the S&P 500 and RSP, an ETF of the equal weighted S&P 500. Due to Mag 7 stocks and NVDIA in particular, the weighted version made new highs while RSP and many individual stocks did not. On the right is an update on the S&P 500, its one year moving average and the difference between the two. During the money printing post COVID year, stocks ignored all over bought readings but previous high points were not great times to load up on stocks.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a weekly bar chart of West Texas Intermediate. On the right is a graph of the daily closing price of EXXON with oil below. If crude oil were an individual stock one could make the case for a decline then a sideways consolidation before another sell off. It's current price does not indicate a strong world economy. Companies that concentrate on oil refining sold off recently on lower margins due to soft gasoline and diesel prices relative to Crude Oil. The Biden administration is selling off a million gallon emergency stockpile of gasoline in the northeast and that will not help prices. Majors like Exxon are still optimistically priced relative to crude oil.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Despite hours and hours of economic analysis and Fed guessing, rates have been remarkably stable for months. Investors are not bothered by the same rates that crashed the market in 2022 because they are sure they can do better than 5% in stocks. A few more days like Thursday and rates will once again become an issue.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The U.S. Dollar held an upward sloping trend line last week. There are likely to be big sell orders right below this line so a break of it should bring follow through to the down side. The saga of the Yen continues with it closing near record lows versus the Dollar. Japanese ten year bonds hit 1% last week with traders betting that the Bank of Japan will have to relinquish its control over their government bond market. One interesting response of the Bank is that most Japanese investors own foreign bonds that are appreciating relative to the Yen so they are benefiting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Traders took profits in precious metals last week with silver falling a quick $2. The pattern looks like it has more down side to it. On the right is a chart showing the weekly closing price of silver, its one year moving average and the difference between the two in blue. A week ago it finished at its third highest level in 20 years. Red ovals mark these high points and green ovals highlight the lows. If you are a true silver fan you ignore these kinds of comparisons but you have to ask yourself if you are getting a better deal by buying near the green or the red ovals.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold also punished the faithful, dropping more than $100 in a couple of days. The right side graph shows weekly closes and a simple RSI momentum oscillator. The oscillator is still near the upper end of its range going into this weekend. In the past, high oscillator readings meant more downside risk than upside reward.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Palladium traded sideways below its 200 day moving average. Platinum pulled back with gold and silver while staying comfortably above its 200 day. A quarterly report from the World Platinum Investment Council is predicting a 460,000 troy ounce deficit for platinum this year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DBC and GSG are two popular commodity tracking ETFs. I started writing more about commodities last summer after long term cycle analysts predicted that things were turning up for commodities. On Friday, DBC closed on its 200 day moving average. Both ETFs show a decline then a sideways move and have yet to declare for up or down.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Much of the excitement about commodities has to do with predictions that "China is back." Chinese stocks had robust rallies this spring. Above are charts of the Shanghai Composite and FXI, an ETF of large cap Chinese stocks. They rallied because the government injected huge sums of money into the financial system. In the past 20 years this resulted in an economic rebound so traders bought stocks thinking the same thing would happen this time. The big money in China is in real estate. This month, the government proposed a program of buying up unsold units of housing to support prices. This would basically nationalize their real estate sector the same way that our treasury did big banks during the Great Financial Crisis. Their move in this direction was because the other programs are not working. Chinese stock markets turned down last week. That could be why copper and other favorites did the same.

 

When I started with E.F. Hutton in the 80s, the older brokers said, "You talk about the steak but you sell the sizzle." By this they meant that when touting a stock you had to know the numbers such as earnings and dividends and sales but what really convinced clients to buy was a compelling story. With inflation "sticky" and interest rates high and economic stats showing strength here and there but weakness too often, new stories are emerging on why you need to own stocks. 1. Historical comparisons or momentum. Cheap computing power allows quick comparisons between today's pattern of trading and previous years. Most of those comparisons with similar years show gains in the second half of the year. On top of that, the market tends to do well during the summer of an election year. 2. AI is the technological revolution that will drive investment, fuel productivity and profitability into the future. So far it is driving NVDIA into the stratosphere and adding to the prices of big tech companies hoping to create the next tech oligopoly but I am unsure how it will work out for the rest of us. It is the first technological revolution that I can think of whose chief selling point is adding to unemployment. Part of the joy in life is to do something or create something original even if flawed. I get prompts asking if I would like some AI program to look at what I have written and redo it with the inference that it will be better. A future generation will have to ask themselves if they want things "better" according to a computer program or if they want it to be of their own creation. 3. This narrative is the one that is catching on quickly - The years following the Great Financial Crisis were about QE and the massive expansion of the money supply along with interest rate suppression. We are moving into the new era of "Industrial Policy," a time of increased protectionism where government subsidies and tax policy will direct billions of Dollars into large, favored (and government supporting) companies. Protectionism means more on-shoring and industry back in the U.S. Government will be the chief investor. As long as the fiscal spigots flow you have to get on board with the favored industries. My problem with this story is that Industrial Policy lasts as long as the government's ability to keep borrowing at a time when the deficit is expanding by trillions a year and debt payments threaten to eat up most tax revenue. The end consumer is down to $5 bargain meals and Wal-Mart store brand food. I just don't see how this can continue into the future. Now is the time to pay more attention to the quality of the steak and not get caught up in the Wall Street sizzle.

Best Guesses -

Stock Market - I think there will be follow through to Thursday's sell off going into early June. I don't see any bargains right now.

Bonds - I would like to see a bit more of a sell off. Oil fell last week and in the past, bonds rallied a couple of weeks after oil dropped so we should be close to a bounce.

Dollar - We got a slight up move in the Dollar but it looks unconvincing so far. A break of the up sloping trend line will bring in sellers.

Gold and Silver - Both metals are still overbought on weekly charts. I am hoping for some downside follow through into next week then a bounce. If a rebound fails to do much after a week then we should get lower prices into July 4th which is often a low time for precious metals.

Other commodities -June is often a weak month for commodities in general. Watch China for clues.

DBE