Tharp's Thoughts Weekly Newsletter

• Article: May 2015 Market Update: Neutral Quiet Market Type, by Van K. Tharp, Ph.D.
• Workshops: $700 Discount Going On NOW on Day Trading Workshop!
• Tip: May 2015 SQN^® Report by Van K. Tharp, Ph.D.
• Matrix Contest: Enter For a Chance to Win a Free Workshop!

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Feature Article

May 2015 Market Update:
Neutral Quiet Market Type

by Van K. Tharp, Ph.D.

View on-line to resolve formatting problems

I always say that people do not trade the markets; they trade their beliefs about the markets. In that same way, I'd like to point out that these updates reflect my beliefs. If my beliefs and your beliefs are not the same, you may not find them useful. I find the market update information useful for my trading, so I do the work each month and am happy to share that information with my readers.

However, if your beliefs are not similar to mine, then this information may not be useful to you. Thus, if you are inclined to do some sort of intellectual exercise to prove one of my beliefs wrong, simply remember that everyone can usually find lots of evidence to support their beliefs and refute others. Just simply know that I admit that these are my beliefs and that your beliefs might be different.

These monthly updates are in the first issue of Tharp's Thoughts each month. This allows us to get the closing month's data. These updates cover 1) the market type (first mentioned in the April 30, 2008 edition of Tharp's Thoughts), 2) the five week status on each of the major US stock market indices, 3) our four star inflation-deflation model plus John Williams' statistics, and 4) tracking the dollar. I will now report on the strongest and weakest areas of the overall market as a separate SQN™ Report. And that may come out twice a month if there are significant market charges.

Part I: The Big Picture

US equities have spent the last 100 days going up 4.3%. This is quite an astonishing contrast when you consider that the S&P 500 made 4 all-time high closes last month with the latest all-time high close as recently as May 21st. This market is very deceptive.

Debt Clock

So in three months, our official debt has gone up by $110 billion. Furthermore, the tendency for the government to manipulate our unfunded debt amount seems to have tapered off as it now seems back to going up slightly each month.

Incidentally, the usdebtclock.org site says there are 118.3 million taxpayers in the U.S and there are 159.5 million people receiving government support. I’m not sure how they determine that figure as some of the sections certainly have duplicates. As a result, I combine U.S. Retirees (48.9 million) with food stamp recipients (45.6 million) and disabled people drawing social security (10.9 million). I don’t think there is any overlap between those categories which total 107.1 million people. The government supported 107.1 million figure is 90.5% of the 118.3 million taxpayers. But remember about 10% of the taxpayers (11.8 million) pay most of the tax revenue. I could also include all government employees as among those supported by taxpayers — but they do pay taxes.

Part II: The Current Stock Market Type Is Neutral Quiet.

My market type classification is not predictive but rather descriptive — rather than telling us what’s going to happen, it simply tells us what’s going on now.

I look at the Market SQN score for the 100 day period for the S&P 500 as my major indicator of market type. But we also look at the Market SQN® score for 25, 50 and 200 days. Right now the 200-day market type is bullish (up 8.98%), while the 100 and 50 day SQN scores are neutral (up 4.3% and 0.36% respectively), while the SQN 25 is bearish (down 0.26%) Volatility moved down to quiet in April so don’t expect a roaring bear market anytime soon unless volatility goes up dramatically.

The graphs below include a chart of weekly bars for the S&P 500 over the last year, the Market SQN® score for 100 days, and the percent volatility.

The next chart shows the directional component of my market type classification over the last year.

And the final chart shows the 20 day ATR% which we use as a measure of volatility

Below is a chart of the weekly changes in the three major US Indices. All three indices are up for 2015 now with the NASDAQ leading the pack.

Part III: Our Four Star Inflation-Deflation Model

In the simplest terms, inflation means that stuff gets more expensive, and deflation means that stuff gets cheaper. There’s a correlation between the inflation rate and market levels, so understanding inflation and deflation can help traders understand some important big-picture processes.

Here are the model components and how the prices looked at the end of May compared with two months back and six months back.

This is the first month since last July to show a tendency toward inflation. The primary factor for the change, however, was gold being higher now than it was both 2 and 6 months ago — but without going up dramatically. See the tracking table below.

So after 9 straight negative (deflationary) months, we see one slight inflationary month. Aside from my comments about gold, there have been rumblings about the Fed raising interest rates this year — but I’m not sure that’s going to happen. And other countries are certainly still trying to export their deflation to the US by devaluing their currencies. See the trend in the dollar below.

Part IV: Tracking the Dollar

The strong rise in the dollar now seems to be over. It made a double top, hit a new short term low in mid-May and then made a modest recovery. The uptrend seems to be over, however, is this a downturn developing or just part of a wide trading range? I have no idea as this report is not about prediction, just what is happening.

Conclusion

I just finished driving all over the US is my new Tesla P85D. It was a great trip and I got a sense of what’s going on in the US. Perhaps it’s my version of “Adventure Capitalist.” Anyway, while I have no strong insights on any particular trends, I do have many observations and I’ll share them with you in a future article.

Until then and next month’s update, this is Van Tharp.

About the Author: Trading coach and author Van K. Tharp, Ph.D. is widely recognized for his best-selling books and outstanding Peak Performance Home Study Program—a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at www.vantharp.com. His new book, Trading Beyond The Matrix, is available now at matrix.vantharp.com.

Update to the Super Trader Program

Recently, Dr. Tharp announced a price increase coming soon for the Super Trader Program. And, you still have time to apply and be accepted into the program at the current rates!

There are two opportunities to attend qualifying workshops in order to be considered for the program before the price increase takes effect. One is the Oneness Awakening Workshop in just a few weeks and the other is Peak 101 in August.

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Trading Tip

May 2015 SQN^® Report

by Van K. Tharp, Ph.D.

View on-line to resolve formatting problems

There are numerous ETFs that now track everything from countries, commodities, currencies and stock market indices to individual market sectors. ETFs provide a wonderfully easy way to discover what’s happening in the world markets. Consequently, I now apply a version of my System Quality Number® (SQN®) score to measure the relative performance of numerous markets in a world model.

The Market SQN score uses the daily percent change for input over a 100-day period. Typically, a Market SQN score over 1.47 is strongly bullish and a score below -0.7 is very weak. The following color codes help communicate the strengths and weaknesses of the ETFs in this report:

This is basically the same ratings that we use for the Market SQN® Score. The world market model spreadsheet report below contains most currently available ETFs; including inverse funds, but excluding leveraged funds. In short, it covers the geographic world, the major asset classes, the equity market segments, the industrial sectors and the major currencies.

World Market Summary — Equities & Currencies

Each month, we look at the equities markets across the globe by segment, region and sector. This month, we see markets starting to recover. There is a lot of light green and yellow, with very little brown and red. There are only four red sectors (3 are currencies) and 13 brown sectors. Last month there were 10 red sectors and 24 brown sectors. The dollar is no longer dominant and that probably explains a lot of what is going on since everything on the chart is relative to the US dollar.

This month seven US sectors have moved from green to light yellow. The Americas are weak to neutral with Canada, Mexico, and Chile being neutral while Brazil and Latin America are negative.

Asia now has three dark green sectors: China, Hong Kong, and Japan. And in Asia, only Thailand is negative this month.

Despite the crisis going on in Europe with Greece, most of Europe has moved from yellow to light green. In fact, EAFE Growth is now dark green. And there are no negative sectors in Europe.

The US sector view shows some strengthening with only four negative sectors (Metals and Mining, REITs, Transportation and Utilities). Volatility is red, meaning there is none. The strongest sectors seem to be Biotech, Consumer Discretionary, Pharmaceuticals, Semiconductors, Aerospace and Defense, Media, Networking, and Software.

The Yuan is now the strongest currency. You might remember that we’ve been talking about how oil might come to be dominated in the Yuan instead of the US dollar. When we first mentioned this, the US dollar was the dominant currency and the Yuan was relatively weak. But since that time we certainly seem to have seen a movement to support that rumor. At this point the Japanese Yen, the Swedish Krona, and the Brazilian Real are still red currencies.

Click Here to View a Larger Image

Commodities, Real Estate, Debt, Top and Bottom Lists

The next chart shows real estate, debt instruments, commodities and the top and bottom ETFs for the past 100 days.

Last month, commodities were mostly brown and red with only one green score. This month there are three light green commodities: 1) timber, 2) global agribusiness, and 3) global water. There are now four yellow commodities including silver, commodities, oil, and steel. There are two red areas coal and agriculture.

US real estate now looks weak and Chinese real estate is getting much stronger. Debt continues to move down this month with 20+ year bonds turning red and only junk bonds remain green. The market seems to be expecting higher interest rates.

The top ranking ETFs in the database seem to have gained some strength after looking very weak last month. Remember that we had no ETFs above 2.0 last month and seven light green ETFs in the top 15. This month all of the top sectors are now dark green with six of them above 2.0. A currency hedged Japan equities ETF had the strongest performance in the last 100 days.

The bottom performing list includes no sectors with Market SQN scores below -2.0 and 10 of the 15 worst sectors are below -1.0 Market SQN. The worst ones seem to be volatility and commodities.

Summary

Now let’s look at the summary table which measures the percentage of ETFs in each of the strength categories.

There was a large shift in May from neutrality to being more bullish. Last month’s record amount of neutral category ETFs has come back down and those seem to have moved into the bullish and very bullish categories.

Until next month, this is Van Tharp.

The markets always offer opportunities, but to capture those opportunities, you MUST know what you are doing. If you want to trade these markets, you need to approach them as a trader, not a long-term investor. We’d like to help you learn how to trade professionally because trying to navigate the markets without an education is hazardous to your wealth.

All the beliefs given in this update are my own. Though I find them useful, you may not. You can only trade your own beliefs about the markets.

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