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 November 29th, 2019
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.
I use Adobe Dreamweaver to create this website. They updated it within the last two weeks. I have to say, the new version is more difficult to use. This is my first update using the new version so some of the spacing might be off a bit and I haven't figured out how to get the spell check to work so reader beware .
Two weeks ago, sentiment readings toward stocks were very high. Bullishness toward the stock market is now more extreme and at levels that coincided with some major market peaks in past cycles. Does this mean that the stock market "has to" crash? No, but it does tell you that the odds of making money in stocks over the next few months are dimished and the likelyhood of a correction of some kind is high. If your orientation is toward stock market patterns (as is mine) then you are trying to fit the current forms into something larger while noting the current level of positive emotion toward stocks.
The pattern of the S&P 500 following the 2018 top still looks like an expanding pennant. If this is the case then we are very close to the completion of its "d" leg. This implies that the next major move will be down! The right side graph shows the summer through fall pattern of trading. The red markings imply that the market traced out a pennant like consolidation. The chart text book says that these types of forms are followed by a final price surge made up of five legs (three up and two corrective) then a reversal. Keep in mind that chart pattern interpretation is very subjective. Other analysts see our current rally as a "breakout" from a sideways consolidation that is in its first leg up with more to come!
On the left side graph is a theoretical count of the market moves that should lead to a top. Wednesday's pre-Thanksgiving trading could have been the final up move in this cycle but the pattern would look more like the charting text book with a pull back that breaks the dashed green trend line before a final up move into December. The right side Barchart.com picture shows a more detailed view of current trading. As I edit this web site, stock market futures are called a bit lower.
Microsoft and Apple are two key stocks because of their weighting in major averages and their market leadership. An earlier posting noted that Microsoft traced out a contracting pennant that is usually the predecessor of a final up move. Again, if we look for a five wave form following the pennant it could be that we are near its conclusion. Warning: It could also be that this is the initial leg of a much larger five wave advance and that after a correction the stock will rocket higher. The right side Barchart.com picture shows the most recent trading going into Thanksgiving. As with the broader market, Microsoft is trading a bit lower in the pre-market.
Apple had an amazing run to the upside this fall with the new I phone selling well. The Barchart.com graph on the right shows that over the last ten days it stalled out a bit. This could be just a short term pause or the beginning of a topping phase. On every financial show there is nothing but praise for Apple. Sometimes this is a sign that everyone is "all in," waiting for the next buyer to push the price higher.
Walmart-Stores is another stock to watch especially since investors are banking on a big Christmas retail season to boost prices and indicate that consumers are still doing well and spending money. The pattern within the green lines is similar to the Microsoft contracting pennant form. You can see that Walmart moved well above this pattern before its recent top which is why I warned that the up side burst out of Microsoft might not yet be terminal. The Barchart.com graph on the right shows that the stock made little progress over the last month.
Amazon had a big move up on Wednesday with everyone anticipating a good shopping season. When I looked at the chart I was surprised to see that it is still trading 200 points below its all time high. AlphaBet, Google's parent company is making new highs. All the analysts love it so watch for GoogL (the stock symbol) weakness as a sign that the high tech boom is running out of steam.
Not all optimism is distributed equally. Caterpillar and Three M are two manufacturing giants. One would think that optimism over the China Trade talks would spread to these two companies. So far their response is limited, especially with Three M. The real question is: If a Phase One trade deal were signed tomorrow, would the world's economies immediately turn up or would we then have to look at less optimistic trends around the globe?
You frequently hear Wall St. people say that if the market is any good, banks and brokerage stocks will be among the leaders. One of the biggest is Goldman Sachs and it is not yet leading. Overall, the financial sector is doing OK as shown by XLF, the SPDR ETF for financials. If we are approaching a major top then XLF could be in the middle of a text book "flat correction" with the next move being a pull back toward the "a" point.
Lately when the stock market rallied, interest rates also increased as bond investors interpreted stock market strength as a sign of stronger economic times to come and more demand for borrowing. Last week the opposite happened. Stock market action signaled a better economy and interest rates fell. They say that bond investors are smarter than stock market investors. It will be interesting to see how this resolves. Junk bonds are still hanging in there. Their price pattern is diverging from the stock market but confidence in lower credit worthy companies remains. Most stock market problems show up first in the credit markets. JNK, the ETF that tracks this market should show signs of cracking if stocks are in serious trouble.
Last time I had no strong opinion on gold. The dashed lines on the left side graph are of equal length. In a perfect world the move up out of the sideways consolidation should match its initial climb from the low but things don't always conform to theory. The chart on the right shows the recent trading. One could theorize that gold is consolidating before another up move or that it is ready to collapse! Right now it is a toss up. Remember, gold does not have to go up if stocks sell off. There is no consistent correlation between the two.
The longer term pattern in gold still fits nicely as an upward correction in a down market. I wish it were not so. In the mean time silver continues to lag and is right in the middle of its price range of the last five years. The lesson of this time frame is that when gold rallies silver follows somewhat and when gold sells off silver does too.
Is there any end to this palladium rally? I suspect that there is and that it will be linked with some kind of stock market weakness. The two markets are moving somewhat in tandem. Platinum is still in the doldrums. I fear what will happen to it if stocks sell off and investors become fearful of another economic slow down.
DBA, the ETF that tracks agricultural food stuff had a good run. Grains recently sold off again but coffee, one of DBA's constituents rallied. Everything seems to be based on the China deal for now with grains following trade news. If DBA were a normal stock I would look for a pull back into the mid $15 range.
Strategy for the next two weeks: The extreme bullish sentiment along with short term patterns have me looking for short side trades in the stock market. I still don't have a strong opinon on gold and silver. Everything seems to be trading off of stocks. The Dollar Index is down a bit as I finish editing this morning but it remans within its trend line boundaries. A break below would tell me that confidence in the U.S. is waning and that investment flows could be headed elsewhere.
Best of Luck,
DBE