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 March 25th, 2023

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.

Due to travel I did not get time to do my day-after-writing edit so please forgive the typos.

Two weeks ago the issue of the day was SVB, a California Bank that went under. Today it is still all about banks with a few new faces.

On the left is a five year graph of First Republic Bank. Two weeks ago it hit the skids after reports that depositors were withdrawing their funds from the bank, possibly forcing it to sell part of its government bond portfolio that is deeply underwater. A group of the country's largest banks deposited 30 Billion Dollars in First Republic on Thursday the 16th, hoping to stem the rush to the exits. It didn't stop the stock from falling. On the right is a five year chart of KBWB, an ETF that tracks a basket of bank shares. Below it is a slow stochastic oscillator which is at the bottom of its range. Previous low points in the oscillator were a decent time to buy banks. On Friday afternoon some bank shares rallied a bit, hoping the worst of the scare is over.

The Swiss Government forced UBS, the giant Swiss Bank to buy Credit Swiss. Governments everywhere were hoping that this move would calm jitters in the banking sector. Credit Swiss was a market maker of all kinds of financial derivatives owned by institutions around the world. If those contracts were to become worthless, it would be months before the dust would settle with grenades going off on balance sheets world wide. After the purchase, Credit Default Swap contracts on UBS started to rise. Traders were worried that UBS would also go under once the full extent of Credit Swiss liabilities were understood. The largest banks in the U.S. were beneficiaries of the run on small and medium sized banks as depositors moved Billions of Dollars into larger institutions but that did not protect their shares from falling. Above and to the right is Bank of America. It fell to 26.32 on Friday morning before bouncing back above 27 in the afternoon. When the slow stochastic oscillator gets to the bottom of its range on a five year chart, it is evidence of very heavy selling. Traders who use these kinds of oscillators to buy when there is blood in the streets are doing so now.

The update two weeks ago mentioned the collapse in Treasury Bond and Treasury Note prices due to the Fed ending their program of interest rate suppression. The graph on the left shows how heavy the paper losses are on bank bond portfolios. The right side chart tracks the flow of bank deposits in small and big banks. The latest data does not include the last 10 days during which this trend accelerated. Depositors in banks of all sizes withdrew money from savings and checking accounts over the last year and put it in money market accounts, short term bond mutual funds or short term T bills as rates on these items rose relative to what banks are paying savers for keeping their money in the bank. This should have been anticipated by people in the banking industry because the same thing happened in the late 1970s and early 1980s when the Fed raised short term rates. The 2007 to 2009 banking crisis had to do with bad real estate loans on the books of banks. The current round of distress is because consumers have better alternatives for their money and are taking advantage of it. An easy solution would be for banks to raise the interest rates paid to customers to keep their money at the bank but this would crush their earnings. At some point they might decide that having a few quarters of low earnings is better than going out of business. The sell off in shares of bank stocks reflects the poor choice facing banks.

Aside from the downs and ups from the banking panic there were other bits of news.

The Consumer Price Index came in around as expected with the shelter component leading the upward pressure. The year over year increase was 6% and the month over month number was 0.4. Real wages (right) failed to keep up again.

Industrial Production was down 0.25% with the trend flat to lower. Capacity Utilization was flat at 77.95%

Lending institutions have been raising credit standards for months in anticipation of a recession. The rate on loans for new cars is higher than it has been in more than a decade and due to new cars being extremely expensive, the amount financed is at a record high. A Zerohedge.com article last week reported that banks are declining more than 10% of car loan applications. Two weeks ago one of the graphs showed that the Manheim Used Car Index rose again last month. This could be because consumers can no longer afford a new vehicle.

Another article included the chart to the right showing that distressed debt, that is, loans on which borrowers are failing to make payments jumped last month. Even though the current crisis has to do with better rate alternatives, it could morph into a bad loan problem. It is no wonder that investors are worried about banks.

It is not all doom and gloom. Today, a report on Home Sales (left) showed an increase in February. Mortgage rates fell a bit earlier in the year and buyers jumped into the market. Many lenders are giving current borrowers sweetheart deals on future refinancing with the theory being that interest rates are likely to come down and you will be able to refinance with a lower payment. On the right is the result of the latest round of Purchasing Managers' Surveys. Both Manufacturing and Services were stronger in February which disappointed those who predicted a Fed pivot based on a slowing economy. The red line is the Citi Economic Surprise Index that compares analysts predictions to actual data. When it is rising it means that the actual data is better than the forecasts. In the past, this was good for the stock market. Thursday's state by state new claims for unemployment number fell to 191,000. No sign of a recession there. No wonder the Fed raised rates by 0.25% on Wednesday.

Above are five year graphs of the Russell 2000 (left) and the NASDAQ 100 with slow stochastic momentum oscillators below. The Russell 2000 index of smaller cap companies is heavily weighted by small and medium sized banks, the sector at the eye of the current storm. The red line marks the top of a previous congestion range and the support shelf of the last couple of months. In previous periods, low points on the oscillator were good buying opportunities. Bears will argue that reality is over powering Chart Mysticism this time around. The NASDAQ 100 is doing well. Long time readers might remember that over the last few years I mentioned an observation put forward by Martin Armstrong. For years he warned that during a systemic crisis, investors would turn not only to gold but to shares of companies that are perceived as safe because they continue to produce good cash flows and they are sitting on a lot of cash. This appears to be playing out now.

According to financial data Apple was sitting on $51.355 Billion in cash and cash equivalents as of December 31, 2022. Microsoft had $99.49 Billion! A Billion Dollars is a 1 with 9 zeros after it. One month T Bills finished the week with a yield of 4.225%. If Apple and Microsoft could average 3.5% on their cash in short term investments Apple would make $4,992,847 per day and Microsoft $9,672,639 per day. Banks don't own the money held in accounts on their books. Apple and Microsoft do. Unlike governments, they have a positive net worth. Is it any wonder that investors see them as safe places to store wealth? For decades, economists have been predicting the collapse of government debt markets since major governments like the U.S. are borrowing billions of Dollars per week with no plan to pay it back. They also predict a stock market collapse to coincide with the debt debacle. The action in Apple and Microsoft is an early indication that some shares might rally instead.

The blue line on both of the graphs above is the path of the NASDAQ 100. The red line on the left side chart divides the NASDAQ 100 by the Russell 2000 to show the relative performance of the two market segments. When the red line goes up it means that the NASDAQ 100 is doing much better. The red line on the right side chart is a simple RSI momentum oscillator applied to the red line on the left side chart so it tracks the momentum of the better performance of the NASDAQ 100. The green dashed lines mark other spikes. In a couple of cases the NASDAQ 100 continued higher but in most, the high RSI reading coincided with a top in the NASDAQ 100. Microsoft has a 12.534% weighting in the index and Apple has 12.316%. Last week, many other NASDAQ 100 companies did not do that well. The index still outperformed because of these two companies. When wealth gets concentrated in a small group of assets it sets up a possible panic when the trend reverses.

On the left is a five year graph of the Dow Jones Industrial Average with a slow stochastic oscillator below. A low oscillator reading is not a buy signal. In a 1929 or 1973 or 2008 scenario, oversold oscillator readings led to even more oversold readings. It does warn traders that their risk of betting on more down side action is high. The rally out of last fall's low took the shape of a five wave advance. The red line marks the fourth wave pull back low. The sell off stopped at this point, something that bulls see as evidence that we are close to the end of the sell off. On the right is a similar graph of the S&P 500. Microsoft and Apple combine to make up 13% of its weighting so their price action is influencing the S&P 500 positively and masking underlying weakness.

The left side graph shows weekly bars of the Dow Jones Industrial Average with red arrows pointing to low points on the 22 week low to low trading cycle suggested by the writer of Cyclesman.com. The timing band for the current low extends into early April. If it remains valid then we might be close to an end of the current period of turmoil. On the right is a graph of the Dow Jones Industrial Average with the daily percent gain or loss of the U.S. Dollar Index added. I subscribe to Sentimentrader.com. Every update includes a money flow reading between countries. For years, almost every day shows big flows into the U.S. and our markets. This chart shows the gains in both the stock market and Dollar for non-Dollar investors. Over the last two weeks, many financial analysts wrote stores on how easy it is to transfer money out of banks. When I was young there were no ATMs. Computer banking was not available and there were no cell phones. I worked in downtown Boston in the early 80s and on Friday there was a lunchtime rush at bank branches because people wanted to withdraw money for the weekend. Now, you can move money with your cell phone. This makes all money, "hot money" that can quickly follow the perceived best returns. Instability in other currency blocks' banking systems due to greater interest rate suppression than what we saw in the U.S. plus the threat of wars and social unrest made the U.S. the destination of hot money for most of the last decade. If our leaders continue to "screw up" and put their energies and focus toward climate change and social engineering, how long before the international hot money goes elsewhere?

Above are graphs of US 2 year notes, 5 year notes, 10 year and 30 year bonds. They cover the period of maximum QE and interest rate suppression then the Fed's record tightening cycle then into the flight to safety rebound of the last month. Below each price graph is a slow stochastic oscillator. I inserted red ellipses on each chart marking the point when the oscillator first hit "over sold" readings. In all cases, prices continued to decline without a meaningful bounce in the oscillator. Usually, these oscillators "work." Sometimes they don't. I mention this because it warns investors that usually reliable trading tools can fail. Interest rates move opposite bond prices so the pictures above show the quick increase in rates that led to banks sitting on lots of underwater "safe" government debt. The various QE and QT programs of the last three decades mask an important question. "What is the market driven price for lending money." The influence of Central Bank policy on rates dominated bond markets for the career period of most financial analysts. You can see this on TV when an important statistic such as the Consumer Price Index or the Monthly Employment data is announced. Instead of asking how it will affect the future demand for money, the conversation immediately focuses on how the Fed will interpret the data going into their next meeting.

In the last update my Best Guess for gold was that no matter how the government responded to the banking crisis, gold and silver were likely to go higher. The move was greater than I anticipated. One problem with gold is that it is a small market relative to stocks and bonds. There is much greater liquidity in Apple and Microsoft and ten year Treasury Notes so in a flight to safety moment it will get some of the hot money but other asset classes and sectors will also benefit. We are in the timing band for one of Cyclesman's weekly lows. The ideal is the week of April 7th but the cycle could have bottomed early where the red dot sits on the chart. From 1966 into the early 80s the stock market bounced off of the 1,000 level multiple times before rocketing above it in 1982. Gold fans hope we are making a similar pattern.

Gold bears will see the left side graph. Under this scenario the thrust from point "b" into last week is a temporary flight to safety just like the graphs of Apple, Microsoft and Treasury instruments. If we are near the end of the panic, as suggested by the 22 week cycle low graph of the stock market then we should be close to the unwinding of the gold surge with an a,b,c upward correction. Bulls will see the right side graph with the current price action interpreted as the first leg of a multi year move to new highs. They will watch the area where the red line sits on any price pull back to be support. Gold fans see the current banking crisis as the first loss of confidence in fiat currencies amid unsustainable money manipulation. It may die down temporarily but other more severe problems will emerge.

Silver had a good pop last week but is not doing as well as gold. On the right is a chart of gold and XAU, an index of gold and silver mining company shares. The red arrow shows you where they were trading over a decade ago when gold was as high as it is now. Were the shares vastly over valued then or are they greatly undervalued now?

The flight to safety in gold and silver is not spreading to other metals with platinum barely budging and palladium traders still worried about a global slowdown and the government subsidized popularity of electric cars that don't need palladium bearing catalytic converters. Copper rose a bit last week but so far, the great China reopening has not done much for the metal.

DBA tracks grain and meat prices. DBC includes a broad basket of commodities. Grains and meats together are flat with cattle futures rising but wheat and bean futures selling off again last week. Commodities in general fell as traders anticipate a worldwide economic slowdown. When you read articles calling for hyper inflation you have to compare their predictions with the paths of these two graphs.

Starting with the buildup of Russian troops on the Ukraine border, how many predictions of $200 per barrel oil did you read or hear on TV? The peak was a few weeks after Russia crossed the border. The trading range between the green lines might be a contracting triangle pattern. These typically lead to a plunge below the consolidation then a quick rebound. Often there is a false rebound followed by one last poke to new lows. Last week's rally could lead to such a scenario. Hopefully prices have seen their lows. On the right is a five year graph of U.S. Natural Gas prices with a slow stochastic oscillator below. Natural Gas had a dramatic plunge over the last few months and is now back to the trading range it held for years. Note that previous low readings on the stochastic oscillator did not lead to immediate rebounds but let you know that if you bought, you were not getting the high. I subscribe to Martin Armstrong's work. His computer predicts potential inflection points in markets months, sometimes years ahead. Last winter it targeted the week of March 13 as a panic cycle week for oil with a change of direction. On his quarterly arrays, the fourth quarter of this year is showing up as a panic cycle with something major happening with oil. Longer term he thinks it is going higher as the cycle of war ticks up into 2027. His monthly arrays on Natural Gas show April and June of this year to be directional change months. Historically, the period between now and June sees seasonal strength in Natural Gas prices.

The Dollar bounced a bit at the end of the week. My theory is that it will head lower but could rally a bit more before finishing its upward correction. On the right is a picture of the daily closing price of gold in NY and the price movement of the Dollar Index inverted so that a weaker dollar means that the red line goes up. Over the last year, gold moved opposite the Dollar so another hike up in the Dollar Index could mean a sell off back to the support area marked on the Daily Gold graph above.

In some of my updates I like to include some pure Chart Mysticism that is highly speculative and probably meaningless. Here is a perfect example. Did you know that stock market inflection points this year are similar to those of 1984? The outright pattern is not the same but low and high points have come in close proximity. The red arrow on the 1984 graph points to the day that would coincide with Friday. In 1984 the next trading day saw prices rise above the previous closing price then the market sold off for a few days, rallied then hit the skids into the first week of April. That time period would coincide with the end of the timing band for the now due 22 week cycle low in the stock market. It is no wonder that my favorite History Channel show is Ancient Aliens.

Best Guesses -

Stocks - Stocks are a mixed picture with some sectors over sold and others rallying. I will anticipate more gyrations and diverging sectors. Given the over sold readings on some of the 5 year graphs I don't want to get too bearish. It could be an up and down market that is difficult to trade over the next two weeks with a bias to the down side punctuated by vicious short covering rallies. If it follows the 1984 pattern then early April could be a buying opportunity.

Bonds - If the panic subsides, bonds are likely to sell off again, especially on the long end. In times of war, no one wants to hold long term debt.

Gold and silver -They should be topping temporarily.

Energy complex - Crude Oil broke the support around $70. I would like to see one more attempt to go lower followed by firmer prices.

Other commodities - The three year cycle would call for a slow bottoming process this spring and summer.

Best of Luck

DBE