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  • Article: November 2015 Market Update: Neutral Quiet Market Type by Van K. Tharp, Ph.D.
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  • Tip: November 2015 System Quality Number® Report The SQN® Report, by Van K. Tharp, Ph.D.

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Feature ArticleDR

November 2015 Market Update:
Neutral Quiet Market Type

by Van K. Tharp, Ph.D.

Click here 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

The market has gone up 1.42% over the last 100 days but there have been no new all-time highs in that period. Last month the market direction was quite clear, however, this month it is not as clear. The 25 day market type is Neutral Quiet, the 50 day market type is Bull Quiet, and the 200 day market type is Neutral Quiet. Furthermore, the market has gone from volatile conditions in September to normal volatility starting October 6th to quiet volatility starting October 30th. It stayed in the quiet range throughout November. Since the market only went down about 10% in August, the drop never developed into what people call an official bear market (down 20% or more). That still may happen but it seems much less likely now.

Debt Clock

The State of the United States

Month Ending

National Debt

Federal Tax Revenue

Federal Spending

Trade Deficit

Debt Per Family

Unfunded Liabilities

Taxpayers

People supported by them

July 31 2012

$15.93 trillion

$2.364 trillion

$3.632 trillion

$810 billion

$684,405

 

 

 

Dec 30 2012

$16.42 trillion

$2.452 trillion

$3.540 trillion

$740.7 billion

$732,086

 

 

 

July 31, 2013

$16.89
Trillion

$2.73
trillion

$3.535 trillion

$703 billion

$748,458

Unfunded Liabilities

115.2 million

109.9M
95.4%

Dec 31, 2013

$17.27 trillion

$2,82 trillion

$3,480 trillion

$692 billion

$751,294

$127.2 trillion

115.0 million

108.5M
94.3%

Aug 31, 2014

$17.70 trillion

$2.97 trillion

$3.53 trillion

$706 billion

$757,297

$118.0
trillion

116.5 million

104.5M
90.0%

Dec 31, 2014

$18.04 trillion

$3.08 trillion

$3.57 trillion

$713.2 billion

$733,741

$92.5 trillion

117.3 million

104.4M
89.0%

Jul 31, 2015

$18.32 trillion

$3.15 trillion

$3.65 trillion

$723.4 billion

$753,212

$97.2 trillion

118.7 million

105.0M
88.4%

Aug 31, 2015

$18.37 trillion

$3.16 trillion

$3.66 trillion

$729.7 billion

$753,533

$97.5 trillion

118.9 million

104.9M 88.2%

Sep 30, 2015

$18.41 trillion

$3.18 trillion

$3.68 trillion

$726.6 billion

$800,855

$97.7 trillion

119.0 million

105M
88.2%

Oct 31, 2015

$18.43 trillion

$3.26 trillion

$3.70 trillion

$736.9
billion

$805,560

$98.8 trillion

119.2 million

105M
88.1%

Nov 30, 2015

$18.71 trillion

$3.29 trillion

$3.72 trillion

$732.4 billion

$810,044

$100.3 trillion

119.4 million

105.1M
88.0%

So in 13 months, usdebtclock.org says our official debt has gone up by $1.4 trillion. Furthermore, the tendency for the government to manipulate our unfunded debt amount seems to have tapered off as it’s now the highest it’s been since November 2014 and has gone over $100 trillion again.

Incidentally, the website says there are 119.4 million taxpayers. It also says there are 160.6 million people receiving government support, however, I’m not sure how they determine that as some of the sections there are certainly duplicated. As a result, I add together US Retirees (49.1 million) food stamp recipients (45.2 million) and disabled people drawing social security (10.8 million). I don’t think there is any overlap here. Those groups total 10.1 million and that’s why I say that they constitute a group that’s 88.1% of the number of taxpayers. I could also include all government employees (23.7 million) as among those supported by taxpayers — but they do pay taxes. Remember about 10% of the taxpayers (11.9 million) pay most of the tax revenue.

Part II: The Current Stock Market Type Is Neutral (Sideways) 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 and 25-day market types are both Neutral (Sideways) Quiet. The 50-day type is Bull Quiet, while the Market SQN score for 100 days, our standard measurement, is Neutral and volatility is Quiet.

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 ATR percent volatility.

You can see from all three charts how over the last two months the market has gone up and volatility has quieted.

Below is a chart of the recent weekly changes in the three major US Indices. The NASDAQ 100 is now up 10% for the year, while the S&P 500 is up 1% and the DOW 30 is down 0.58%. Pretty much the same place as we were last month.

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 in the economy and market levels, so understanding inflation and deflation can help traders understand some important big-picture processes. See the tracking table below for our inflation-deflation model.

Date

CCI> DBC

XLB

Gold

XLF

Total Score

Dec ‘05

347.89

30.28

513

31.67

 

Dec ‘06

394.89

34.84

635.5

36.74

 

Dec ‘07

476.08

41.7

833.3

28.9

 

Dec ‘08

352.06

22.74

865

12.52

 

Dec ‘09

484.42

32.99

1,104.00

14.1

 

Dec ‘10

629.53

38.47

1,410.25

16

 

Dec ‘11

564.37

33.5

1,574.59

13

 

Dec ’12 CCI>DBC

556.08
27.79

37.54

1,564.80

16.39

1

Dec ‘13

25.66

46.22

1201.50

21.86

-1.5

Dec ‘14

18.45

48.59

1199.25

24.73

-3.0

Jan ‘15

17.40

47.69

1260.25

23.01

-3.0

Feb ‘15

18.17

51.49

1213.70

24.35

-1.0

Mar ’15

17.01

48.78

1187.00

24.11

-3.0

Apr ’15

18.29

50.42

1180.25

24.13

-1.5

May ‘15

17.71

50.61

1190.50

24.60

+0.5

Jun ’15

18.00

48.39

1176.00

24.38

-1.0

Jul ’15

15.73

45.94

1098.40

25.18

-2.5

Aug ’15

15.69

43.36

1135.00

23.42

-2.5

Sep ‘15

15.15

39.95

1114.00

22.66

-2.0

Oct’ 15

15.20

45.28

1142.35

24.08

-1.5

Nov’ 15

14.19

45.57

1061.90

24.56

-2.0

Here are the model components comparing prices at the end of September with two months back, six months back, and the contribution to the total score.

Month

DBC2

DBC6

XLB2

XLB6

Gold2

Gold6

XLF2

XLF6

Total Score

 

Lower

Lower

Higher

Lower

Lower

Lower

Higher

Lower

 

Sep 15

 

-1

 

 -1/2

 

-1

 

+1/2

-2.0

Notice that 14 out of the last 15 months have shown deflation. In such a climate, it’s interesting that Federal Reserve officials still talk about raising interest rates at their December meeting. I’m not sure that’s going to happen.

Also notice that banks are still not lending money — a deflationary force. This chart from the St. Louis Fed’s website shows the M-1 money multiplier is about 0.75 which means banks are lending about 75% of the money supplied by the Fed.

The money multiplier figure used to be more than twice the current amount in the decade preceding the global financial crisis. It needs to be much higher than that to really stimulate the economy (and bring back inflation). Just to put today’s money multiplier level in perspective, around 1987 it was over 3.

Part IV: Tracking the Dollar

The US Dollar Index had a huge surge last month and is now pretty close to its April highs. It has definitely broken out of the range that it was in for the last six months. Traders seem to believe that the Fed will raise interest rates so this has definitely strengthened the dollar. What’s next? I have no idea.


Click here to view a larger image

Conclusion

Some newsletter writers have said that when we have a sharp drop of nearly 10%, the market nearly always recovers strongly and to bet on that recovery. So far that seems to be the case.

Other pundits say we are going into a deflationary depression where cash will be king. Gold is hitting new five year lows and commodities are well down. In addition, our inflation/deflation measure has been showing deflation for more than a year. So these pundits could be right as well.

What’s the bottom line? Don’t listen to pundits. Notice what the market is doing. Right now the market is moving sideways and it has low volatility. Can you make money in a Neutral Quiet market type? If yes, then do what you do. If no, then your best bet is probably cash.

Until 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.


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Trading Tip

DR

November 2015 System Quality Number® Report
The SQN® Report

by Van K. Tharp, Ph.D.

 

Click here 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:

  • Dark Green: ETFs with very strong SQN® 100 scores > 1.47
  • Light Green: ETFs with strong SQN 100 scores (0.70 to 1.47).
  • Yellow: ETFs with slightly positive Market SQN scores (0 to 0.70). These are Neutral/Sideways
  • Brown: ETFs with slightly negative Market SQN scores (0 to -0.7).
  • Red: Very weak ETFs that earn negative Market SQN scores (< -0.7).

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. Once again the world is mostly brown and yellow. Part of this global weakness, however, might be due to the rise in the US Dollar which would cause the rest of the world so seem to be going down (i.e., as their currencies depreciate).


Click here to view a larger image

This month the US equity market segments are 60% yellow and 40% brown which corresponds to the sideways quiet market type mentioned in the market update article above. The other Americas equity markets are red except for Mexico and Canada which are brown.

Asia looks stronger than last month but everything is yellow or brown except Singapore which is red. China, Japan, South Korea, and India are the strongest Asian countries being yellow.

Europe tells the same story. Everything is brown — except for three countries — Austria, Belgium, and France which are all yellow. But nothing in Europe is showing extreme weakness even in the face of a strong US Dollar.

The US Sector view shows all yellow and brown industry sectors with two major exceptions — Metals & Mining which is red and Semiconductors which are light green. With a strong dollar, US sectors should be doing well.

In currencies, three are yellow, four are red and the rest are brown. The US Dollar has the highest score of 0.62, followed by the Currency Harvest ETF and then the Euro. The weakest currencies are the Swiss Franc, the Brazilian Real, the Canadian Dollar, and the Yuan. The IMF will give the Yuan reserve currency status in 2016 which could have long term bearish implications for the US Dollar.

Commodities, Real Estate, Debt, Top and Bottom Lists


The next chart shows real estate, debt instruments, commodities, the top and bottom Market SQN scores ETFs for the entire database over the last 100 days.

Commodities are mostly red with a few exceptions — Timber and Global Water are yellow while Silver is brown.

U.S. real estate is still yellow, while Chinese real estate is brown. So many Chinese invested in real estate and thought it could only go up so the score shows how bad the situation is in China - though it may have started to trend up now.

Debt was mostly light green last month but now it is mostly yellow. 1-3 year US bonds and inflation protected bonds have both turned brown which perhaps indicates that the market is expecting higher interest rates soon.

The top four ETFs in the database are now dark green – and they are mainly municipal bond ETFs. Munis dominate the top ETFs list including the light green scores. We now have one ETF over +2.0 — PGF — and 12 of them are over 1.01.

The bottom list also includes four ETFs with Market SQN scores below -2.0 as compared with five last month. The bottom 15 are all red which means they are at or below -1.5.

Summary

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

Date

Very
Bullish

Bullish

Neutral

Bearish

Very
Bearish

2013

> 1.5

0.75 - 1.5

0 - 0.75

0 - -0.7

< - 0.7

Jan 31st,

27.1%

39.6%

20.7%

6.4%

4.7%

Feb 28th

10.3%

45.2%

24.4%

11.9%

7.5%

Mar 31st

39.2%

25.5%

19.1%

9.0%

6.4%

Apr 30th

49.1%

21.1%

14.8%

8.0%

6.2%

May 31st

29.2%

23.6%

19.9%

12.3%

14.2%

Jun 30th

2.1%

31.0%

23.2%

22.0%

20.9%

Jul 31st

8.2%

33.5%

29.0%

13.3%

15.2%

Aug 30th

1%

15%

46.4%

19.3%

17.5%

Sep 30th

1%

13.8%

42.3%

23.0%

19.1%

Nov 1st

13.3%

48.3%

21.8%

12.5%

3.3%

Dec 1st

14.6%

42.7%

24.2%

13.3%

4.3%

Dec 31st

19.3.%

45.5%

22.0%

11.3%

2.9%

2014

 

 

 

 

 

Jan 31st

8.0%

49.3%

20.7%

12.7%

7.6%

Feb 28th

18.9%

48.4%

18.1%

6.2%

6.8%

Mar 31st

4.9%

40.2%

38.8%

13.3%

3.1%

Apr 30th

11.1%

33.9%

40.2%

11.3%

1.8%

May 31st 

12.5%

46.5%

27.7%

7.6%

6.0%

Jun 30th

53.4%

33.7%

14.2%

2.5%

0.8%

Aug 29th

20.3%

45.2%

22.8%

10.5%

5.3%

Sep 30th

6.6%

26.9%

30.2%

24.0%

18.5%

Oct 31st

2.9%

17.9%

38.8%

17.7%

26.3%

Nov 30th

3.1%

25.7%

25.1%

22.8%

27.9%

Dec 31st

3.7%

29.2%

24.8%

15.6%

31.2%

      2015

 

 

 

 

 

Jan 31st

7.2%

9.4%

35.1%

25.5%

27.3%

Feb 28th

6.4%

41.1%

34.5%

11.5%

10.9%

Mar 31st

2.3%

24.0%

46.4%

19.7%

12.9%

April 30th

1.6%

13.6%

69.4%

15.0%

5.7%

June 30th

1.4%

15.8%

48.5%

29.0%

10.7%

July 30th

0%

7.2%

49.7%

39.0%

9.4%

Aug 31st

0%

0.4%

7.6%

49.7%

42.3%

Sept 30th

0%

2.7%

7.6%

42.7%

39.8%

Oct 31st

1%

6.0%

19.5%

51.3%

22.2%

Nov 30th

0.8%

3.1%

38.0%

42.1%

16.0%

Three months ago 92% of the ETFs we track are either in bear territory or strong bear territory. That number is now down to 58% — in spite of the strong dollar. This is, however, not enough of a reason to get optimistic - we had a bear market type last month and this month we are only in a neutral quiet market type.

Be careful to base your actions upon what is happening, not what you think might happen.

Until the December SQN Report 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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