Tharp's Thoughts Weekly Newsletter (View On-Line)
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Article July 2014 SQN Report by Van K. Tharp, Ph.D.
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Trading Tip Taking a Day Off From Trading By D. R. Barton, Jr.
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Video Swing Trading – One Day at a Time By Ken Long
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Many Exciting Workshop Opportunities Coming Up
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Then, in October, we are presenting two technical workshops which are packed with great systems that really work well. These workshops also go in depth in their specific trading area, Forex and Swing, while you simultaneously learn how to incorporate the key Van Tharp principles into the trading technique.
For more information including links for combo discounts, click here.
Article
July 2014 SQN® Report
by Van K. Tharp, Ph.D.
View On-line
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 over a 100-day period for input. 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 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
Each month, we look at the equities markets by segment, region and sector. Europe and the US are starting to look bad while Asia and some of the Americas are doing fine.
(To see a larger version of this chart, click here.)
I put off doing the SQN report for one week because I was concerned when the market turned to Neutral Quiet despite the S&P 500 hitting new all- time highs. Well, nothing much has changed in the last week as the range change percent over the last 100 days for the S&P 500 is still under 4. And that’s shown above by the S&P 500 appearing as yellow. All US market segments are either yellow or brown except for microcaps which are in a strong bear market (red). The other American economies are doing much better than the US with Canada, Mexico, Brazil, and Latin America all being green. Emerging Markets are also green.
Colors in Europe are like those in the US — no greens and ranging from yellow (Russia, UK, Emerging Europe and Spain) to Red (Netherlands and Sweden). On the right side of the table, only South Africa is light green.
Asia is in much better shape with the worst countries being yellow (Australia, China, Malaysia). There are plenty of light green countries and even dark green ones (S&P China, Hong Kong, and Singapore).
In specific sectors there are a few light green areas. These include Energy, Oil and Gas Exploration, REITs and Technology, plus the Dow Transports. However, we also have four areas that are red: Homebuilders, Regional Banks, Gaming, and Volatility.
SQN scores for currencies show the Swedish Krona, the Swiss Franc, and the Euro all to be extremely weak. In contrast, the US Dollar and the Brazilian Real are both strong. The Yuan’s Market SQN® score didn’t show up this month due to an error in the CYB ETF data. If the data error was fully resolved, a subsequent check showed the Yuan has now turned yellow compared to last month’s very weak red.
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.
Commodities are much weaker this month as only base metals, coal and steel show up light green and there are no dark green areas. Oil is the only yellow sector; all the rest are negative with timber, agriculture and livestock all being red.
US real estate has moved from super strong to light green, while Chinese real estate has improved from light green to dark green. All the interest rate sectors are positive. Long term interest rates and inflation protected real estate are green while the shorter term instruments and junk bonds are now yellow.
May showed 3 ETF scores above a Market SQN of 4.0 and 9 ETF scores above 3.0. In June, the entire list was above a 3 with only one scoring above 4. This month, the strongest ETF, PWZ, only scores a 2.66—which means it's score actually went down over the month.
Last month, only three of the weakest ETFs scored below -1.0. This month all fifteen are below -1.0 and three are below 2.0. These tend to be agriculture funds. While it has been nearly six weeks since I did the last SQN® report, this represents a huge change.
Summary
Now let’s look at our newest table which measures the percentage of ETFs in each of the strength categories. At the end of June, 87% of the ETFs we track were either bullish or very bullish, while only 3.3% were bearish or very bearish. On August 8th, despite a new closing high in the S&P 500 two weeks ago, we have a much different picture. 33.1% of the ETFs are either bullish or very bullish. This is down by about 54%. And now 31.2% are bearish or very bearish. This is up by 27.9% — a huge change.
Date |
Very Bullish |
Bullish |
Neutral |
Bearish |
Very Bearish |
|
> 1.5 |
0.75 - 1.5 |
0 - 0.75 |
0 - -0.7 |
< - 0.7 |
January 31st |
27.1% |
39.6% |
20.7% |
6.4% |
4.7% |
February 28th |
10.3% |
45.2% |
24.4% |
11.9% |
7.5% |
March 31st |
39.2% |
25.5% |
19.1% |
9.0% |
6.4% |
April 30th |
49.1% |
21.1% |
14.8% |
8.0% |
6.2% |
May 31st |
29,2% |
23.6% |
19.9% |
12.3% |
14.2% |
June 30th |
2.1% |
31.0% |
23.2% |
22.0% |
20.9% |
July 31st |
8.2% |
33.5% |
29.0% |
13.3% |
15.2% |
August 30th |
1% |
15% |
46.4% |
19.3% |
17.5% |
Sept. 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% |
January 31st |
8.0% |
49.3% |
20.7% |
12.7% |
7.6% |
February 28th |
18.9% |
48.4% |
18.1% |
6.2% |
6.8% |
March 31st |
4.9% |
40.2% |
38.8% |
13.3% |
3.1% |
April 30th |
11.1% |
33.9% |
40.2% |
11.3% |
1.8% |
May 31st |
12.5% |
46.5% |
27.7% |
7.6% |
6.0% |
June 30th |
53.4% |
33.7% |
14.2% |
2.5% |
0.8% |
August 8th |
9.9% |
23.2% |
39.8% |
23.8% |
7.4% |
What's Going On?
Economic fundamentals are still terrible. The US stock market moved from Strong Bull to Neutral Quiet in a very short period. This could either be the start of something strongly to the downside or just a short pause. Nevertheless, sideways quiet markets are very difficult markets in which to make money. Act based upon what is happening, not based upon what you think will happen. And be careful.
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.
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 newest book, Trading Beyond The Matrix, is available now at matrix.vantharp.com.
Workshops
Forex Trading Systems Workshop...Coming in October!
Gabriel, a professional Forex Trader and graduate of Van's Super Trader Program, will be back soon to teach a three-day Forex Trading Systems Workshop, followed by two days of live trading sessions. Gabriel will discuss Forex trading ideas and teach three specific trend-based trading systems. These systems can be traded in various timeframes and can be traded across a wide range of currency pairs. Gabriel’s preferred style is swing trading using primarily 15-minute, 60-minute and 240-minute candle charts.
Learn More.... |
| September: USA |
| Sept 6-7 |
New! Tharp Think Essentials
with Van Tharp and Janie Guill |
| September: Berlin, Germany |
| Sept 19-21 |
Peak Performance 101
with Van Tharp and co-instructor Janie Guill |
| Sept 23-26 |
Peak Performance 202
with Van Tharp and Libby Adams and co-instructor Janie Guill |
| Sept 28-30 |
Peak Performance 203
with Van Tharp and co-instructor Janie Guill |
| October |
| Oct 11-13 |
Forex Trading
with Gabriel Grammatidis |
| Oct 14-15 |
Live Forex Trading
with Gabriel Grammatidis |
| Oct 17-19 |
Swing Trading Systems
with Ken Long |
November |
| Oct 30-Nov 1 |
Peak Performance 101
with Van Tharp and co-instructors RJ Hixson and Janie Guill |
| Nov 3-6 |
Peak Performance 202
with Van Tharp and Libby Adams
and co-instructors RJ Hixson and Janie Guill |
| For Super Trader Only Events, click here. |
Combo Discounts available for all back-to-back workshops!
See our workshop page for details.
Trading Tip
Taking a Day Off From Trading
By D. R. Barton, Jr.
(Editors note: D. R. wrote this article yesterday, Tuesday.)
I’m not trading today.
Van’s very first Top Task Trading is “Daily Self-Analysis” and this morning, I can’t seem to get my head in the game. After extensive work on myself (with the help of Van and others), I’ve realized that no matter how well-designed my systems and strategies are, on days when I’m not right (i.e. not in the proper mental state) my trading suffers. So…
I’m not trading today.
An Unusual Reason to Forego Trading
Robin Williams died yesterday. I found out last night when I was watching TV with my wife. We were both dumbstruck. Our surprise was certainly painted over with a sense of sadness, so we turned off the tube and listened to some comforting music for a few minutes before going to bed.
Then this morning, our fund’s team talked about Williams’ passing briefly in our pre-market meeting. I was reminded of one of the funniest and amazing live performances I’ve seen when my good friend Dr. Chris Szymanski recreated (as an exercise in a training seminar) part of a Robin Williams’ comedy set where he impersonated a cat. Chris really went all out (complete with cat make-up) in his portrayal and absolutely killed it. The room (including me) was howling!
At the end of our pre-market meeting, Chris said that he had re-watched an episode of Mork and Mindy and was reminded of Robin Williams’ comedic genius. I remembered an episode where he appeared on the Tonight Show with Johnny Carson — Williams went into an extended improvisation and took over the show (not easy to do with Johnny Carson behind the desk). I still remember that I was in awe — and laughed until my side hurt when I first saw it.
I laughed out loud again when I re-watched it on YouTube this morning. And then, with no other apparent trigger, I cried. Then I remembered some more of my favorite Robin Williams moments (no YouTube this time). And I cried some more.
Though I’m not an overly emotional guy, I have personally learned that life is best lived by experiencing all the emotions that God has given us — “A time to weep and a time to laugh, a time to mourn and a time to dance” as the writer of the book of Ecclesiastes wrote. I can only remember really mourning the loss of one other person that I did not know — E.B. White. Sure I’ve been saddened when learning of the deaths of people I didn’t know personally, but I didn’t really mourn any of those other losses in the proper sense of the word. E.B. White's death was a little different.
While I don’t agree with most of his political leanings, it’s safe to say that White's writings changed me profoundly. He taught me to slow down and look at the world in a new way. He challenged me to be an observer rather than just a guy who quickly passes through without noticing the beauty and intrigue that can be found in the simplest of things.
In October of 1985, I had just finished reading the book Essays of E.B. White when I read about his death while sitting at my desk at DuPont . This was my first job office and I shared it with two other people. It was a strange room called “The Blister” because it was built as an afterthought as a fire observatory on the end of a huge building called “F Canyon” where plutonium was chemically separated from uranium (the Canyon was almost three football fields long).
On this particular day, for whatever reason, my office mates were gone. The moment I read that E.B. White had died, I was overcome by grief, and I cried. A good, soul-clearing cry. One of my mentors had passed on.
A Useful Insight
I cried about the death of Robin Williams today, I believe, because it was tragic (it appears that he took his own life) and because I felt a great sense of loss — another person who had given me so much laughter, entertainment and creative energy had passed from this world. I’ll process his complex life in my mind at another time. For now, arguably the greatest comedic talent of our generation will create no more.
So, I’m not trading today. And that’s good for two reasons. One, my head’s not in the game and two, “being out of the market” is another one of Van’s Top Tasks of Trading.
What are some reasons that would trigger you to stay out of the markets or not make any new trades or open any new investment positions? That’s a VERY good question to ask yourself! And stay aware of your answer!
Epilogue
Here are some of my favorite Robin Williams moments:
- Any appearance on Carson (manic, inspired, side-splitting)
- Voice of Aladdin (iconic)
- Good Will Hunting scene when he finally confronts Will on a park bench (Oscar-worthy)
- The soccer scene from Dead Poets’ Society when students were required to recite a verse before taking a shot on goal (inspirational)
- Ms. Doubtfire — both the T-Rex scene (great riff) and when his kids discover who he is (you really see the Dad come out in him)
- Stand-up cat impersonation (see above)
What are your favorites? Send them, along with any reasons that keep you out of the markets, to me at the email below.
As always, your thoughts and comments are always welcome - please send them to drbarton “at” vantharp.com.
Great Trading,
D. R.
About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured guest on both Report on Business TV, and WTOP News Radio in Washington, D.C., and has been a guest on Bloomberg Radio. His articles have appeared on SmartMoney.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at "vantharp.com".
Disclaimer
Video
 Swing Trading — One Day at a Time
Interested in seeing Ken’s latest trading idea? This 2 minute video details a +3.5R trade taken on Monday, August 11 based on a regression line fractal format or RLFF as Ken calls it. One of the systems that Ken teaches at the Swing Trading workshop found the setup and then he traded the signal intraday. He calls this method, “Swing Trading — One Day at a Time.”
Click here to watch the video.
Matrix Contest
Our Matrix Insight Contest has ended and the votes have been counted!
And The Winner Is....
Congratulations to Cristina Sau
When we first received this submission we published it anonymously. However, once her essay was picked Cristina happily agreed to allow us to announce her name.
Cristina was born and raised in Brazil until her family immigrated to Portugal when she was a teenager. She completed her studies and started working in Portugal in retail finance. She then continued her career in Moscow and London restructuring retail banks. In 2010 she moved to the Caribbean to live with the love of her life. Since then she has been free-lancing as a management consultant and learning to trade in pursuit of financial freedom. In 2013 she discovered the Van Tharp Institute and her trading education has taken off. She has been using the Matrix book as a guide to create her own personal version of the Super Trader Program and has been delighted with the results so far. She aims to achieve financial independence by December 2016 and plans on living a blissful life afterwards as a beach-bum.
Cristina wins a foundation workshop of her choice (learn which workshops are considered foundation workshops) or a VTI product of her choice ($795 or under).
Read Cristinia's Winning Entry Here
Our next Matrix Insight Contest begins today. Learn more....
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