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, 2017

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.

 

mmm3

Chart from ThinkorSwim site. Last time I called for a stock market top, a low in precious metals and a decline in the U.S. Dollar. I hit the jackpot. I am batting above my average so you need to discount anything that I write this week. If you believe that over time, things regress to their historical norm then I need to lighten up on my positions because they are likely to be losers for the next few weeks.

Is the sell off over? 3M says no. Remember, in my previous update I noted that it formed a contracting pattern for a probable last pop. I said that if it went down instead it would lead to a waterfall decline. We got the decline. The form of the down move is typical for the first leg of a larger pattern. I have to assume that whatever happens in the yellow box will be some type of pause before more damage is done to 3M and the broader market. When everyone has been predicting higher prices there is a natural tendency to buy after the first slide. Most of the time there is a follow on move that turns the world bearish.

 

 

 

 

 

 

 

 

 

russ xpnas bop

 

 

 

 

 

 

 

 

 

 

 

 

 

When we talk about "the market" we usually have a specific measurement in mind such as the Dow Jones Industrial Average. Here are two popular indices that look very different. On the left is the NASDAQ 100, highly influenced by the big popular tech stocks like Apple and Microsoft. On the right is the Russell 2000, a small capitalization measurement. The big tech stocks were the last hold outs during the final days of the rally. As noted last time, there were a number of days in April when new 52 week lows outnumbered highs. The fact that the different market sectors were so divergent in their patterns was another tip off that a correction was near. Look at the red lines and letters on the Russell 2000 on the right. It could be tracing out an expanding triangle formation, a rare, large correction before one final manic burst to new highs then a major reversal to the down side. The odds are low so don't bet the farm. On TV they blame political turmoil for the sell off. During the last few days of the advance CBOE reports showed traders putting on many more bullish options strategies than bearish ones. These bullish expectations as expressed with real bets in the options market are typical near market peaks. Basically, things were set up for a fall. The news is just the excuse.

 

 

 

 

 

 

 

 

 

p u 02p u 3

 

 

 

 

 

 

 

 

 

 

 

 

 

Above are two charts of the S&P 500, the most watched market measurement. The smartest analysts I know are convinced that higher prices will follow a correction and that the correction is likely to take the form of one of the two drawings above. The left side chart is predicting a "flat" type of correction. We had an original high then a decline followed by a slightly higher peak. The next leg should slightly over shoot the previous low then it would be "off to the races" again. The right side art depicts a contracting triangle formation, a consolidation made out of five sub moves with each decreasing in amplitude. A final move up and reversal would follow. Both patterns could take us into this summer.

 

 

 

 

 

 

 

 

 

bull dow

 

 

The bullish analysts believe that we are correcting the portion of the post election rally within the blue box, the third wave of a five wave sequence. Support for the fourth wave is suppose to be near the red line. Once the pause runs it course they expect a final fifth wave rally matching the nearly 3,000 point advance that took place between January 2016 and April 19th of that same year.

Well thought out plans never pan out as scripted. The advantage to thinking ahead is that a) If you see the pattern unfold it gives you a heads up for what might be next. b) We all sleep better if we think we have a "solid plan" even if it turns out to have been just a fantasy.

 

 

 

 

 

 

 

 

 

 

 

 

gs major

 

 

 

 

 

Goldman Sachs accounted for much of the run up in the Dow Jones Industrial Average after the election and the recent decline in March and April. The price is approaching my support point but the sell off has only one major leg to it. There should be some kind of sideways or upward poke then another dive.

 

 

 

 

 

 

 

 

 

 

 

 

 

ple

 

Apple is still the key stock to watch. Last time I noted that if it did not start to correct I would expect a 1987 type market where things just kept going up and up into August then got hammered in the fall. Apple, Amazon, Facebook, Google and a few others are thought to be "always buy" stocks because they will just go higher. Back in the early 1970s when I was a freshman and sophomore at Bates there was a similar list of companies that were called "The Nifty Fifty." They were companies such as IBM, Xerox and Polaroid. It was said that the only decision to be made was how much to buy, not if you were going to buy or not. They all got wiped out in the crash that cut the Dow Jones Industrials in half by 1974. The reasons for owning the Nifty were just as compelling as the ones for buying our current smaller group of market heros. Near every top, the winners look invincible and the reasons for owning them are unquestionable.

 

 

 

 

 

 

 

 

 

 

 

J Dreg D

 

 

 

 

 

 

 

 

 

 

 

 

 

This is something I watch daily. On the left is a regular chart of the Dow Jones Industrial Average. On the right are the same numbers adding changes in the U.S. Dollar Index. Look at the right side extreme of each chart. On Friday we got a good bounce up in the Dow but the Dollar sold off during the day so the net return for an international investor was next to nothing. Two weeks ago I said that hot money could leave Dollar denominated investments for Euro zone items following the French election. It looks like this might explain some of the recent action. I will be watching the January 31st lows near 25,000 on the orange chart for support.

 

 

 

 

 

 

 

 

 

dol don

 

 

 

 

 

 

Remember December and January when all the commentators were talking about the Dollar going higher? Now they are surprised by the intensity of the sell off. We might have some more frequent bounces but I think we are two to three weeks away from a low. Chart fans will note the congestion area between the red lines and look for it to provide some support to the Green Back.

 

 

 

 

 

 

 

 

 

 

 

Euro

 

One way to play the currency move is to track the Euro against the Dollar. Last month I suggested that the Euro could be making a "flat correction" with the recent lows being the "b" leg that will be followed by a "c" that takes it slightly above point "a." That would put the ending point at around $1.20 Dollars to one Euro. Is it all politics? No. Car sales in Europe have been great and economic activity is picking up. Until recently it was believed that the U.S. was the only game in town and investors moved wealth out of European investments and into our markets. That car sales number was a real turning point. You don't buy big ticket items unless you are feeling better about the next few years. Note: On my chart this is still just a correction in a down market. If so, the up move is a fake out before something bad happens to the European Union later this year and into 2018.

 

 

 

 

 

 

 

 

 

 

ja auger au

 

 

 

 

 

 

 

 

 

 

 

 

 

On the left is a regular graph of gold. On the right is the same data adjusted for changes in the value of the U.S. Dollar. Look at the way the metal traded last week. On the left side chart it popped up but once you account for the Dollar declining you can see that on the right side it didn't do much. Lately, gold has been moving opposite to the stock market in a flight to safety manner whenever stocks look weak. I am anticipating lower stock market prices over the next few weeks so gold should respond. If it doesn't then it will signal more trouble for the metal. A move below $1,180 would have me looking for a break of last fall's lows.

 

 

 

 

 

 

 

 

 

path au

 

 

 

 

While smart analysts are still looking for a move toward the dashed purple line, I am anticipating something like the red lines with a final low below 2015's prices late this year or early next. If I see it happen I will be a big time buyer.

Yes, I say that now, but we all know that if it breaks 2015's low everyone including me will be afraid to touch it because there will be absolutely no reason to own the stuff. That is what makes a good bottom.

 

 

 

 

 

 

 

 

 

 

 

 

 

ag kod

 

 

 

 

 

In April I wrote something positive about Silver. I don't know what came over me and I promise I will never do it again. Part of the problem with silver is that it is more economically sensitive than gold. Stocks decline and some people run to gold for safety but they worry about silver because in a slowing economy demand for it as an industrial item will decline.

 

 

 

 

 

 

 

 

 

 

 

 

 

both ps

 

 

 

 

 

 

Last time I thought that palladium would decline if stocks sold off and that there could be some spread buying of palladium and selling of platinum that would be unwound if palladium started to sell off. A few bad days at the track brought out the sellers in palladium but platinum hung in there. I suspect that we will see more of this into June.

 

 

 

 

 

 

 

 

 

 

 

 

2 pint9

 

 

TLT is an ETF that tracks longer dated U.S. Treasury Bonds. The rate on that bond closed the week at 2.9%. That is not much reward for the risk of owning a 20 to 30 year debt instrument after a period of heavy government intervention in the market. Bonds have been rallying lately (rates lower) in response to a shaky stock market just as gold was bid up a bit. Since I expect more stock market turbulence I also expect a bid for the bond market. As governments around the world exit their support operations it will turn out that they were the only real buyers at these paultry returns. If I had a big fixed income portfolio I would consider these stock market related bumps up as a chance to lighten up.

 

 

 

 

 

 

 

 

 

 

 

junkk

 

 

High yield debt, or Junk Bonds as they used to be known (like Pre-Owned Vehicle versus Used Car) usually follow the stock market. I would be worried about this sector if I owned a lot of the stuff. Last week it was reported that American households are now more in debt than they were before the crash. This does not even count margin debt on stock. There are explanations as to why it is not really as bad as 2007 but the truth is that debt increases fragility in any system. Car companies have been giving loans to anyone who can breathe and our over priced real estate sucks cash out of the economy.

A break of the red trend line will look bad.

 

 

 

 

 

 

 

 

 

 

 

hsh

 

 

 

 

In the last couple of weeks the Shanghai Composite slipped below an up trending line the market touched four times since its big sell off in 2015. I did not hear a lot of talk about it in the financial press but if it was an ordinary market I would expect it to test the previous lows. Sometimes I listen to Bloomberg radio at night as the Asian markets are opening. Commentators will frequently mention "signs of government buying" in Shanghai to support prices. If this is a market supported by government money, it is weaker than it appears.

 

 

 

 

 

 

 

 

 

 

 

 

o dO a

 

 

 

 

 

 

 

 

 

 

 

 

 

OPEC is meeting to figure out how to keep oil prices up. Traders bid up the price of domestic crude in NY last week in anticipation of some kind of announcement. A move above $54 would break the recent pattern of lower highs and suggest a challenge of the $60 range. Higher prices encourage more production in N. America and give producers the ability to hedge future output at high prices so that they can keep pumping even if oil drops significantly. History says that any plan to boost the price will eventually fail.

 

 

 

 

 

 

 

 

 

corn

 

Chart from ThinkorSwim site.

This is a chart of CORN, an ETF that tracks the price of corn. For the past few months I have been putting money into agricultural items related to cocoa (NIB) and baskets of commodities (DBA). I traded out of them early last week because they had decent runs and looked likely to correct. Now I am watching corn as a key to when to reinvest. Lately it has been trading in a contracting sideways pattern that is likely to break out to one side or the other. I will buy on a break to the up side or preferably a thrust down to lower prices. Sentiment is very negative on grains with no urgency to buy. In the mean time large users of grains are getting long in the futures markets to lock in current low prices. That is usually a good time to buy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TSLAWFM

 

 

 

 

 

 

 

 

 

 

 

 

 

Parting Shots - On the Saturday before Easter I went to Whole Foods to buy a few things. Honestly, I forgot that Easter was the next day until I was near the store. In past years you could not even find a parking space. I was shocked when I got there. The parking lot was only three quarters full, similar to any other Saturday at mid-day. The two regular super markets in my area now have sections in their stores where you can buy some of the more popular items sold in Whole Foods and they stepped up their quality in meats, fresh veggies and fruits. Analysts say that foot traffic is down in most Whole Foods stores compared to previous years. The stock popped recently on take over talk. If someone doesn't seal the deal soon I expect the stock to slide into the 20s. A couple of weeks ago I was talking with a guy whose son works at TESLA. He was a big fan of the company, electric cars and government subsidies. He told me that they are building a plant to produce a new car with a $13,000 profit margin. The best part was that no human labor was involved. Isn't that great- No jobs!? This is a company that is living off of your and my taxes through different GREEN CREDITS, losing money constantly and having to raise new money that dilutes current equity while selling cars to rich people who then get tax credits for buying their $100,000 vehicles. And the stock sells at above $300! Something is wrong here. Yes, I have read all the stuff about new batteries to store energy from wind and solar and solar panel shingles that charge your car overnight etc. And I agree that Elon Musk is a brilliant guy. Sometimes I wonder if he is also the P.T. Barnum or Elmer Gantry (Google Elmer Gantry) of our time and if TESLA isn't the short sale of the decade.

"Every crowd has a silver lining." - P.T. Barnum

 

Strategy for the next two weeks - Even if the stock market is correcting before another advance there should be more to the sell off. Tracking 3M and Apple could be the key. We had an initial leg down and now a consolidation. Watch for the follow-on decline. The Dollar looks a couple of weeks away from a low so more "hot money" could leave our markets to avoid being parked in a losing currency. Gold, silver and bonds should do OK in Dollars but so far the precious metals are disappointing given the drop in the Dollar. If gold can't do better than it has then when the Dollar turns up it should be under pressure again. I anticipate choppy and difficult markets, good for short term trades only.

Best of Luck,

DBE