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 Sep.19th, 2020

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.

 

 

 

 

 

 

 

 

 

 

 

 

Two sets of government statistics released last week were less robust than expected. Industrial Production was up a bit but nothing like the gains seen in previous months and far below the rebound anticipated by the stock market. It was the same for retail sales, the right side graph from Zerohedge.com. Starting in mid-August analysts warned that economic activity was moderating following the end of peak government stimulus. Data released last week confirmed this. New claims for unemployment came in around the expected level at 860,000 but The Street was hoping for a surprise number below 800,000 that would reinforce the idea that a "V' shaped recovery was still in progress.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The world's most widely benchmarked index, the S&P 500 made new lows on Friday and continues to trade below a short term trend line. It also closed uder its 50 day moving average, a marker that some trading programs use as a buy or sell indicator. "Swing traders" who watch the market for trades below or above previous week's levels saw it penetrate the prior week's trading range, another short term negative. Analysts say that portfolio managers are selling expensive FANG stocks to fund purchases of cyclicals which will be the new leader. There is no fear that stocks are making a major peak, only the belief that new horses will lead the race higher.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Dow Jones Industrial Average was down slightly for the week as money shifted into some cyclical names while the NASDAQ 100 bore the brunt of the selling. Traders are looking at previous support levels as possible targets for this period of weakness. Fans of this group of stocks point out that there is nothing happening in the economy that will dent the earnings of Apple, Microsoft, Amazon or Google and they see this as a chance to buy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The play book of many analysts says that COVID shut down beneficiaries will now lag while industrials, financials and small capitalization stocks such as those found in the Russell 2000 index will lead the market higher. Things were on track with the Russell 2000 until late in the week. If employment and industrial production stall it is difficult to see how smaller companies will benefit. The broader based NYSE composite was not as enthusiastic as the narrower market measurements on the way up in August and didn't make new lows on Friday.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Those of us who were active during the fall of 1987 can't forget it even if it never repeats. Following the initial decline the market formed an "N" kind of pattern. It could be that the Dow Jones will do the same this year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Two of the "never go down" stocks sold off again last week. Apple had a big product day that was disappointing. The 5G I Phone is running late and Apple didn't promise to buy back billions of Dollars worth of stock at higher prices. Traders will be watching the trend line for support. Amazon formed a contracting triangle over the summer. These patterns often lead to a final surge then correction. Traders will be watching the low end of the red line for support.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Last week, the Dow Transports made a new high, unconfirmed by the Industrials. Dow Theory fans are hoping the Industrials will join the Transports so that the Dow complex will be "in gear" to the upside. One of the heavily weighted components of the Transports, FedEx is responsible for a good part of the up move. They announced great earnings and good forward guidance last week. Both FedEx and UPS imposed COVID sir-charges earlier in the year and it it was great for earnings. Despite my state (Massachusetts) re-opening, delivery trucks are everywhere as consumers are now accustomed to ordering many things on line. Union Pacific and other rails are also winners. Last week on Zerohedge.com there was an article about the shortage of large freight vessels to bring containers from China to our west coast. The per-container cost is way up as a result. Earlier in the year supply chains fell apart. After stimulus checks were issued there was a surge in U.S. retail sales that depleted inventories of everything. Now we are in the middle of the Great Re-stocking of shelves. Not only that, but Christmas is coming and extra merchandise is on its way for holiday demand. The shortage of freighters is now migrating into U.S. ground transportation. There is a shortage of container carrying rail cars to ship everything landing on the west coast east toward major U.S. cities. Rail is cheaper than trucking but some are being forced to trucks as rail capacity is squeezed and they charge more per container. Every company involved in the chain will have a few great months until the surge subsides. When the shortage of ships, rail cars and trucks hits the financial news networks it will be a signal that the peak is close.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Last week I mentioned that traffic around my area picked up greatly over the last couple of weeks and that the markets had not yet responded. Last week, DOE inventory numbers for crude showed another 4 million barrel decline. That, and some comments from OPEC and Gulf of Mexico storms were enough to bring in buyers in crude oil and gasoline as shown by the Barchart.com graph on the right.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Energy related stocks had a more muted response. Exxon did well for two days then sold off with general market weakness. Marathon Petroleum, a big oil refining company, bounced off support then traded sideways as the stock market retreated. Remember, funds are under pressure by environmental activists to dump hydrocarbon related stocks. Many fund managers are doing so in an effort to virtue signal. This makes the energy sector cheap relative to most of the market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Fed had its monthly meeting and announcement on Wednesday. It promised to keep buying 80 billion dollars worth of Treasuries and lots of mortgage backed securities along with corporate bonds. In other words, the Fed will continue to rig the bond market, insuring that buyers of bonds don't get a market interest rate and that holders of bonds don't have to worry about a sell off. They also repeated their Jackson Hole language about letting inflation rise above 2%. The Fed, the Bank of Japan and the ECB have been trying to get inflation to move higher for more than a decade without success. Some analysts point to recent price increases such as those mentioned above in the transportation supply chain as evidence that inflation is indeed picking up. Others note that these are temporary squeezes that will subside as things get back to normal. For inflation to take hold, the consumer has to increase spending. Last month's retail sales do not show consumers ramping up their purchases. The real inflation has been in the stock, bond and precious metals markets. Above are charts of the day by day rate a buyer would get by buying ten year Treasury Notes and thirty year Treasury Bonds. Neither the stock nor the bond market were impressed by the Fed's latest decisions. It is almost as if they have quantitative easing fatigue. Note the last few weeks of sideways action. If these were graphs of stocks I would look for a run to the upside in rates which implies lower bond prices.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The corporate and high yield sector of the bond market didn't do much either. Junk bonds usually move with the stock market. If stocks continue to sell off so will high yield. Remember, everyone knows that these markets are artificially priced. Traders think they are smart enough to get out before things fall apart.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

When you look at the path of the Dollar since it's low in 2008 it is not doing that badly despite the many articles calling for a crash. This could change with a Democrat victory since the focus would go back to redistribution and away from growth and employment in the United States. On the right is a very short term picture of the Dollar's pattern from the Barchart.com web site. After its recent low at the beginning of September the Dollar rallied then traded in a sideways pattern, the same as in the 1987 chart of the stock market above but in the opposite direction. In this case the "N" shaped move will resolve to the upside. A move below the 92.60 level would put this bullish interpretation in doubt.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Up or down? Everyone who looks at charts is predicting the same two scenarios. The more positive reading sees gold moving like the graph of Amazon above. In this case it will have one last manic surge then reverse as shown by the left side chart. Others think the contracting triangle will lead to a sudden and brief sell off followed by a final robust up move then a decline. When everyone is watching the same pattern with similar interpretations there is always the danger that something else takes place such as a break to the down side that just keeps going lower with no final pop. Right now it is best to wait and see.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Suspense is building around silver and mining shares too as the sideways range encourages bulls and bears to place bets. Given the contracting nature of the patterns following the August high we should get a break one way or the other this week!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Palladium rallied a bit with traders still thinking about the entity that took delivery on a large number of contracts a few weeks ago in NY. Platinum didn't do much and continues to follow gold. Copper was a star amid expectations for the world to get back on track but chart gazers are watching the area in the yellow box compared to the one on the 1987 stock market chart and wondering if copper is closing in on a short term top. If equity markets sell off, copper traders will lose courage.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corn (Barchart.com graph above left) and soybeans continued to rally. As shown by the Sentimentrader.com chart to the left, hedgers added to their soybean shorts and are at levels seen at past tops. Last week I referred to copper fifteen years ago when hedgers were short and the market was overbought but continued higher on China buying. The same thing is happening with soybeans now. Exports to China are high and the enthusiasm is spreading to other crop markets. How long it will last is unknown. It is a difficult market to play since traditional indicators such as the hedgers data warns traders against buying at these levels. A month or so ago I wrote that these markets were buys and that no one cared about them. Now, everyone is watching.

 

 

 

 

 

 

 

 

 

Strategy for this week -

Stocks - The S&P 500 and NASDAQ 100 broke lower at the end of the week while the Dow bounced off of previous lows. The break of the 50 day moving average by the S&P 500 is a negative for many traders and so is the formation of a weekly "swing high." The path of least resistance is down with the first couple of days of the week confirming or reversing the short term trend. On Sunday night some news is usually released, often having to do with a vaccine, that makes stock index futures jump higher coming into Monday. The first day of the week has been the strongest on balance all summer long. A break of the pattern with a down Monday will be negative. If the market sells off a bit but fails to go a lot lower by Tuesday afternoon I will be looking for the above mentioned 1987 form with a rally toward 28,500 on the Dow. A sharp decline early in the week will indicate a more immediately bearish pattern.

Wednesday is "Battery Day" for Tesla. The stock rebounded from weakness over the last couple of weeks unlike other NASDAQ leaders. When I joined E.F. Hutton in 1980 as a stock broker the old timers told me that in order to sell stocks you have to "know the steak but sell the sizzle." Elon Musk is a master of sizzle and he had better be good. The stock closed at a price to earnings multiple of 1,145. Visions of a Tesla future and fantastical predictions of a new world dominated by Tesla products can only go so far. Investors are ready for some steak. Unless Elon heals a lame person or turns water into wine, investors are likely to be disappointed.

Bonds - Interest rates ticked up a bit despite Fed promises of continued purchases. I keep waiting for that "wake up" moment when holders of bonds decide to get out now while the Fed is still willing to buy.

Gold and silver - The sideways pattern looks like it will break one way or the other this week! As far as direction, your guess is as good as mine. Watch the Dollar Index for clues.

Corn and Soybeans - History says that these markets should be near a peak but when China starts buying the sky is the limit. Go back and look at copper charts between 2000 and 2010.

Ruth Bader Ginsburg passed away. Now, with a vacancy to fill on the Supreme Court the willingness to do anything to win and the emotions surrounding this election are headed much higher. Did you need more controversy and hysteria in the media? This will only make things more volatile. COVID, riots, looting and now a Supreme Court battle. Yow. Should we buy liquor company stocks or just more liquor?

Best of luck,

DBE