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

May 20th, 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.

Two weeks ago, some of the chart patterns of bank stocks hinted that the worst of the banking crisis was over for now and that the market was pricing in peak disaster. If so then gold and silver were likely to sell off and stocks could do better than anticipated. The last two weeks of trading were dominated by Artificial Intelligence mania. Nvidia and Microsoft were the most mentioned names. Anything associated with AI was a "have to buy" company. We saw the same thing happen a few years ago when Bitcoin ran up to $60,000. Every company spokesperson interviewed on TV talked about their block-chain plans. Last week, every corporate executive talked about their ongoing plans to use Artificial Intelligence to increase productivity (code for getting rid of workers) and profitability. Commentary on AI was everywhere with some pundits saying it would be the end of humanity and others celebrating the big increases in productivity that would come from getting rid of useless humans and replacing them with AI. There is an often discussed technological innovation cycle. Futurists have been pointing toward the 2023 to 2024 time period for the next big thing in tech that will transform business and society. For now, the market believes that Artificial Intelligence is that next springboard, for better or for worse. The same thing was said of the Internet in the 90s and those predicting it were correct, however anyone buying INTERNET stocks in the late 90s got their heads handed to them a few months later. In the mean time, investors following regular economic statistics and Central Bank policy are debating the "soft landing, hard landing, no landing" scenarios. After stocks rallied last week some analysts claimed that the trough in earnings was seen in the first quarter of this year and that things will only get better from now on. Analysts are influenced by market action. After a good week or two at the track they predict a future in line with recent gains or losses in the market. Here is some of the data most traders are ignoring because Artificial Intelligence is the tide that will raise all boats.

The Core Consumer Price Index rose 0.4% month over month and 5.2% year over year led by the shelter component (mortgages and rents). Many analysts believe that shelter costs are topping. Producer Prices continue to decline led by the cost of goods which are showing a negative rate of change. Bulls are hoping that these measurements of inflation continue to moderate without an economic collapse.

An article from Real Investment Advice focused on a recent National Federation of Independent Business survey. The NFIB is a large organization made up of small business and its street level sense of what is happening in the economy has been accurate in the past. Members are not confident. They are cutting back on plant expansion plans and equipment buying. They anticipate lower sales over the next year. They are also increasingly cautious about filling open positions. The right side graph shows that employment is still growing but at a slowing rate. Bulls will argue that things are as bad as they are going to get and now is the time to buy.

A couple of months ago the Empire Manufacturing Survey showed a big jump in activity, much to the relief of those hoping for a soft landing. Last month it joined survey results from other Fed districts and cratered. Information for this survey is taken from the NY, Philadelphia area. On the right is the latest reading of the Citi-Economic Surprise index. It compares predictions of economic activity to the actual numbers. Earlier in the year, surprises were to the upside. It peaked in March. Since then, the actual results are worse than the estimates.

The surprise index for China also turned down. When China ended its draconian COVID lock-downs, analysts thought there would be a huge economic bounce back that would be felt all over the world in terms of demand for imported goods and especially commodities such as oil and copper. So far, it is not happening to the degree anticipated. What is worrisome is the graph on the right that tracks Chinese youth unemployment. Lots of young men with nothing to do often results in civil unrest or they are harnessed for combat to prevent civil unrest.

Retail sales rose very slightly. Analysts point out that these numbers show the increase in nominal terms, unadjusted for inflation. When inflation is taken into account the number is flat to down. Shares of Foot Locker fell 30% on Friday after they reported soft earnings. Wal-Mart and Target posted lukewarm results earlier in the week. An analyst from UBS says that we are seeing three phases of inflation. The first was when governments shut down production then sent out stimulus checks during COVID. The second followed the Russian invasion of Ukraine. The third is the result of companies raising prices above their costs and then some, using the first two inflations as an excuse to pad their margins. He thought it was just a question of time before consumers push back. On the right is a simple comparison of families using credit cards to get by. It looks at this year and last year. Adopters of Artificial Intelligence are hoping to have more of us using our credit cards as AI puts us out of work. Maybe that is why many big tech executives are fans of governments providing universal basic income payments.

A few months ago there was a brief period when interest rates fell. Home buyers took advantage of the window to jump into the market. Since then rates went back up and this is reflected in the resumption of down months for existing home sales. On Thursday the 18th the Conference Board's latest reading on Leading Economic Indicators showed another drop. The blue line is the year over year change. They gray line shows change in GDP in the past and its correlation to the LEI number. The S&P 500 closed up 39 points on Thursday with traders focusing on AI and believing that things can only get better. On the same day, several Fed officials spoke at various meetings. All said that inflation is still running too hot and that more rate increases might be needed to cool things off. How cold do they want it?

At the top and to the left is XLK, the biggest ETF play on mega-tech which is heavily weighted by some of the hot AI companies. To the right of it is XRT, the retail store ETF. These two pictures capture the current split in the market between the hopes for tomorrow and the reality of today. Since December, more and more money migrated to a small group of big tech issues. There are good reasons for this. One is the emergence of AI. The other is the perception that we are headed into difficult times and that the debt limit fight might get ugly and the banking crisis is far from over. Companies like Microsoft and Apple and Google are sitting on billions of Dollars and with interest rates rising, those billions are generating more cash. They are the safest place to store wealth for now. The two middle charts show the paths of Wal-Mart Stores and Macy's. When people can't afford Macy's they go to Wal-Mart. Wal-Mart sold off on Friday after earnings beat recently lowered estimates but showed obvious weakness in consumer spending power. To the right is a chart of the Dow Jones Industrials in red and the XRT retail ETF in blue. At times, the Dow can do better than retail when a certain segment of the market gets hot but over time the Dow and retail have a strong correlation. Seventy percent of our economy is driven by consumer purchases.

One of the most popular charts making the rounds is the left side picture that shows the S&P 500 and an equal weighted version of the same. The S&P 500 is capitalization weighted which means that the biggest companies in it (Apple, Microsoft, AlphaBet) move it the most. The difference between the blue and black lines reflects the under performance by most of the 500 companies in the index compared to a few high flyers. On the right is SPSM, an ETF that tracks smaller companies. Their path is similar to the equal weighted S&P 500. It is difficult talking about "the market" in the current environment because it is so split between winners and losers. Bearish analysts say that this is a sign of a speculative bubble and they could be correct but in some previous eras, small groups of winners rose farther and for longer than anyone thought they could.

When in doubt, check the oscillators and sentiment readings. Above are one year graphs of the S&P 500 and the NASDAQ 100 with slow stochastic oscillators below. The S&P 500 poked above recent highs last week. The oscillator is not at the highest end of its range yet. The NASDAQ 100 went parabolic last week. This kind of action usually does not end well but can last for a while. Sentimentrader.com, a website to which I subscribe points out a couple of interesting things. First - Most industry groups are still in up-trends coming out of October's lows even if they are overshadowed by the speculation in AI stocks. Second - Small traders in stock index futures are betting heavily on a crash as shown to the left. In past markets, this happened near lows. The update two weeks ago showed similar action in options trading. The news is bad but the underlying, purely technical underpinnings of the stock market are still decent. Should the news improve, there is likely a big short covering rally out there.

Above are charts of TLT, an ETF that tracks longer dated U.S. Government Bonds and LQD, an ETF that tracks investment grade corporate bonds. Bonds were hammered last week (interest rates rose) with rates rising on the shorter end of the curve faster than the longer end. The graph to the right shows the yield on different government bills, notes and bonds as of the end of the week. The best returns are in the short end. Traders are worried about the debt ceiling negotiations and the possibility of payment delays on shorter term issues. Economists point to the inversion in yields (shorter paper paying much more than longer dated paper) as evidence of a recession in our future.

The slow stochastic oscillators on TLT and LQD are at the bottoms of their ranges. In previous cycles, bonds rallied when this over sold. I drew in red lines around the trading ranges in both graphs. Traders will be watching for a breakout in either direction. Thirty year T Bonds finished the week around 3.92%. In a world of uncertainty, yields between there and 5% on shorter dated paper look pretty good! Last weeks' Treasury acutions of Notes and Bonds were well received with foreign money buying 70% plus!

Last time I mentioned that there were lots of articles talking about the coming crash in the Dollar and more advising the purchase of gold and silver. I understood this to be a contrary indicator. As short term U.S. rates rose, so did the Dollar. Last week there was a coordinated effort by Fed officials to talk up interest rates. For some reason they talk constantly at different events and all say that the fight against inflation is not finished and that raising rates again is a possibility. The left side chart shows the path of the Dollar Index with a slow stochastic oscillator below. The numbers on the chart interpret the recent sell off as a five wave decline that is currently being corrected before another sell off. Short term, the rebound is over bought. Without extraordinary news next week, a pull back is likely just as a bounce is likely in bonds. On the right is a graph that compares the daily closing price of gold with the path of the Dollar. The Dollar's moves are upside down so that an upward move in the red line means a weaker Dollar. If the Dollar pulls back a bit, gold and silver could catch a short term break.

Gold fell $!00 off of its recent peak and recovered a bit on Friday as the Dollar retreated. Mining stocks, which never got the enthusiasm that the metal did, hit the skids too. Over the last four years gold formed a triple top. Old time analysts say that "Double tops are meant to hold. Triple tops are meant to be broken." A couple of months ago I watched an interview with Charles Nenner, a well known cycles analyst. His opinion, based on long term cycles, was that gold would pull back a bit in early summer then break out to the upside. Corrections have at least three legs. I would expect any bounce to be followed by another sell off phase.

Silver disappointed the faithful again with its rapid drop. On the right is a chart from Sentimentrader.com showing the typical seasonal tendencies for silver. June is usually the worst month of the year for silver and it has a flat to down bias for gold too. If the metals follow seasonal tendencies, the next window for buying them will be around the fourth of July.

Platinum pulled back a bit in sympathy with gold. Analysts are predicting a platinum market deficit this year which helped prices recently. Most of the world's platinum comes from S Africa which is having a hard time generating enough electricity to keep the mines running at full capacity. Palladium has some wild intra day swings but is tame as far as price. Governments around the world are trying to legislate internal combustion engines out of existence despite their reliability and lower cost. Palladium's most visible use is in catalytic converters that are not used on electric cars. Last week I rented a car in Minneapolis. Before my trip I went to Hertz where I have an account and checked the website for available cars. They only thing they had left were electric cars. A Tesla was going for $76 a day. I went to Budget's site where I also have an account and got a gas powered car for around $100. Most of the time, the per-day cost for EVs is more than gas powered cars. I didn't want to rent one because of the length of my drive. It looks like I was not alone.

Find the Inflation in the charts below -

Coffee is fairly high and sugar is way up there. Most other things are trending down. Wheat is entering a seasonally weak period as is corn with soybeans due to turn down next month. Despite all the Fed talk about inflation and the need to raise rates, energy and food prices (with the exception of sugar) are in down trends. You still hear egg prices mentioned in stories about food inflation but as you can see, wholesale prices crashed as chicken populations recovered from the avian flu.

Last week there was another big flow of money into money market funds. After the market closed Friday the latest report on bank deposits (for the week of May 10th) showed another big outflow from big and small banks. Commercial Real estate prices turned down in the first quarter of this year. It would look worse except that the number of transactions fell. Around 70 percent of loans on commercial real estate are through smaller banks. Analysts at major firms are predicting price declines of 25% to 40% depending on the city. Billions in loans will have to be rolled over in the next few years with the bulk of them being for multi family housing bought during the recent boom and financed extremely cheaply. It is no wonder that investors are worried about the banking sector.

Best Guesses -

Stock Market - The news is bad and the economic reports are discouraging. Just going by the news you would sell but traders who are usually wrong are positioned for a crash. What could keep U.S. stocks from hitting the skids this summer? To the right is a chart showing the daily closing of the Dow Jones Industrials (blue) and the same with the percent gain or loss in the Dollar Index added to the closing price of the Dow Jones Industrials. Every day in Sentimentrader.com they have a bar chart series showing what countries are benefiting from money flows. Every day for the past few years the U.S. is number one or two. 99% of the time it is number one. I am most of the way through Herbert Hoover's Memoirs from 1929 through 1941. During the mid-1920s gold (the world was on the gold standard) flowed out of Europe and into the U.S. because smart money knew things were not going to go well in Europe. We are seeing a similar thing now. Reports from the Fed on U.S. stock purchases by foreigners (Feb was the last reporting month available) showed huge buying. Even though the Fed is tightening, global wealth flows are going into U.S. assets. You may ask, "What if the Dollar declines?" Despite promises to the contrary, once Roosevelt got into office he confiscated gold and devalued the Dollar. Foreign investors saw U.S. assets as a bargain now that their Dollar worth in gold was less. Once again, gold flowed into the U.S. to scoop up stocks and the market bottomed. Early to mid June is likely to be an inflection point in stocks. If they sell off into the well advertised X Date (the day the Treasury runs out of money if there is no debt ceiling agreement) then I will be a buyer. Any further melt up is likely to spark a short covering rally into that time period and could form a temporary high. So I will wait for now and do the opposite of a June high or low.

Bonds - Short term over sold and likely to rally over the next week or two.

Gold and Silver - Short term bounce followed by further weakness into June. If Charles Nenner is right, that summer low might be the last opportunity to get in before a big up move.

Dollar - A short term pull back before another rally phase.

Other commodities - Nothing looks good here except for sugar and who wants to buy it at $0.26?

Best of Luck

DBE