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. 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. If your beliefs are not similar to mine, however, then this information may not be useful to you. Thus, if you are inclined to go through some sort of intellectual exercise to prove one of my beliefs wrong, simply remember that anyone can find evidence to support their beliefs and refute others. Simply know that I admit that these are my beliefs and that yours might be different.
These monthly updates are in the first issue of Tharp’s Thoughts each month which allows us to get the closing data from the previous month. These updates cover 1) the market type (first mentioned in the April 30, 2008 edition of Tharp’s Thoughts), 2) the debt statistics for the US, 3) the five-week status on each of the major US stock market indices, 4) our four-star inflation-deflation model, and 5) tracking the US dollar. I also write a report on the strongest and weakest areas of the overall market as a separate SQN™ Report. Significant market changes may mean the SQN Report comes out more than once a month.
Part I: The Big Picture
So despite the impeachment trial, newsletter warnings about a bear market selloff, and the impact of the coronavirus, the market continued up in January to new, all-time high territory. There were six new all-time highs in the S&P 500 in the last month. Volatility is Quiet so there isn’t too much to worry about in the short term, and on only two days in January, the 6th and the last day, the market wasn’t Strong Bull Quiet. We had several down days toward the end of the month blamed on the coronavirus pandemic. Don’t take this too seriously, though, it’s just people inventing imaginary scenarios to explain market activity.
The US Debt Clock site no longer gives enough information to determine what percentage of the US population requires government support – but it’s been about 80% of the number of taxpayers. We will eventually put something else in that column.
You really should look at the US Debt Clock site periodically (www.usdebtclock.org). They started showing a lot of new statistics recently and then they changed it again. I want to concentrate on some of the statistics that the new format highlights –
If you have an iPhone, you can now download the US Debt Clock app:
https://apps.apple.com/us/app/us-debt-clock-real-time/id929822826?ls=1
Remember, those with money who are in power, make the rules. Their goal is to make sure they stay in power and don’t turn it over to new wealth. Impeachment trials are a good example of that principle. Richard Nixon had a legitimate impeachment trial, but he was never impeached. He resigned and then Gerald Ford immediately pardoned him.
Bill Clinton was impeached for “having sex in the white house and for lying about it.” Come on, John Kennedy was famous for that, but there was much more privacy in those days. Bill wasn’t removed from office, however, he just lost his license to practice law. And he was never touched for Whitewater or for Hillary’s trading scandal – just for sex and lying. The books about the Clinton’s at the time were like books about a Mafia family – cross them and you ended up dead. I don’t hear that about Trump.
The current impeachment trial is just a joke. It is Republicans versus Democrats and nothing more. It would not have surprised me that even if the Senate had impeached Trump (the vote has not occurred yet as I write this report, but it’s obvious) that he still might have won the election in the fall.
Has Trump been doing a good job as president? I certainly like the tax changes he put through. I actually pay more corporate taxes now because when my corporate rate was 39%, I limited our gains per year. With the corporate tax rate now at almost half of its old rate, I’m willing to retain a lot more of our earnings in the company (which is good for the company) and we actually pay more total taxes. Trump also got trillions of cash stored by US Corporations overseas to come back to the US. Those are major contributing reasons for the stock market boom and although most Americans are not taking advantage of this boom, you should be.
But has Trump done a good job? No. We are already going through the 6th mass extinction – this time due to humans. And much of the human population could be wiped out by global warming. Trump doesn’t care or doesn’t believe it or he thinks he’s 73 years old and won’t be around to see it anyway. He’s not helping endangered species. He’s playing war games and corrupt politics (no different from any other president). The spread between US government spending and revenue is now over a trillion dollars per year. We cannot continue to spend at this rate and to have an unofficial debt of over $125 trillion.
Part II: The Current Stock Market Type Is Bull Quiet (but during almost all of January, it was Strong Bull Quiet).
Let’s take a look at the weekly bar chart below for the S&P 500. You can see that we just made another new all-time high a few days ago. You can clearly see the uptrend for 2019.
I monitor timeframes for the Market SQN from 5 weekly bars to 40 weekly bars. Look at the price chart pattern and you can probably tell the direction for each of the periods –
- 200 days – Bull in November, Bull again
- 100 days – Bull last month, Bull now
- 50 days – Bull last month, Bull still
- 25 days – Strong Bull last month, now Neutral (sideways)
So now all of our measured periods are either Neutral or Bull.
The chart below shows how strong the market has been in 2019. It had a sideways rating during the middle part of the year and then a strong up move since October – all while there was a hint of impeachment and trade wars going on with China.
The next chart shows the volatility measurement for the last twelve months. Volatility has been in the Quiet range for several months now.
Lastly here are the weekly changes for the three major stock indices for the last month. If had you been fully invested from the beginning of 2019, then you’d be up 22% in the DOW, up 23% in the S&P 500 and up almost 38% in the NASDAQ 100. Two Dow stocks, Apple and Microsoft, were up 86% and 55%, respectively accounting for a lot of the DOW move this year.
So far the S&P500 is on a pace to make 24% in 2020, the Dow is on a pace to make 19%, and the NASDAQ 100 is on a pace to make 56% for the year. It’s also an election year and the market usually does well in an election year.
This is also the end of a decade. Over the last 10 years, the market is up 257% which averages out to 13.6% per year. So while the medium income only went up 10% over the decade, you would have made 13.6% per year for holding a market position and that’s a nice increase. The average increase in the S&P 500 since the 1920s is only 10.3% per year. If you had put $1,000 into Bitcoin in 2010, you would have turned that into $1.4 million – and we are still in the early stages of a crypto bull market. This is the opportunity of your lifetime.
Part III: Our Four-Star Inflation-Deflation Model
Three of the four model components displayed deflationary strength in January.
We had had three strong inflation months and now a reversal. The Fed has lowered interest rates three times recently and they are buying treasuries again – good signs for the stock market ahead. They really have lost control over the market without going to negative interest rates and they’d love to outlaw cash so that they can charge you for leaving money in the bank (while at the same time you cannot withdraw it). So we have an election year (bullish force) and the Fed playing games to stimulate the economy – which is a pretty good sign for the equities overall in 2020.
Shadowstats.com still shows the inflation rate (as it was originally conceived in 1980) as being around 10%. With that adjustment in the GDP, the original inflation rate suggests that we have been in a recession since 2000 with just one-quarter of non-recession.
Part IV: Tracking the Dollar
USD closed December at 97.36. It was nearly 100 in early October so it has been in a downward trend. It was up slightly over January despite a huge down move at the end of the month. To keep this in perspective, remember that the index started more than 40 years ago in 1973 at 100.
Conclusion
We continue to live through a big ugly trade war. It has several fronts and it may continue for a while or it may start to finish soon. We have signed, supposedly, one preliminary agreement with China but now they are in big trouble with the coronavirus. I have one Super Trader who lives in Beijing – and although away from the infected area, he says that shops are restaurants are closed so he has little to do except work on his Super Trader lessons. He had to cancel his trip to Cary for our February workshops. China cannot stay shut down for too long without a severe economic impact and that’s part of the reason for the current downturn.
It’s an election year, the Fed is stimulating the economy, and corporate taxes are down favoring significant earnings increases. These are all very bullish for the economy.
In addition, gold is up 20.8% over the last 12 months. In September last year, BTC had had a nice run but gave us a sell signal for cryptoassets. All of our crypto signals are now bullish again and we have a BTC halving on May 20th – historically, a bullish influence.
Earlier I said that if you had invested $1,000 in BTC in 2010 and kept it you’d have about $1.4 million now. Over that same period, our BTC trading system would have turned $1,000 into about $2.4 million and it’s long right now. We are giving this system away to those in the new, (soon-to-expire) Super Trader Foundation Program who complete the pre-requisites.
Our purpose in this market update is to merely reflect on what is happening right now, not to predict. Be careful you are paying attention to what is happening – not only to what you expect to happen. Stay in the now!
Until next month’s update, this is Van Tharp.
Trade well and create the life you want for yourself.