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. However, if your beliefs are not similar to mine, 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 is wrong, simply remember that everyone can usually find lots of evidence to support their beliefs and refute others. 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 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.
Part I: The Big Picture
What is going on? The stock market and cryptos are both booming – because the Fed stimulus goes into markets, not the economy. That is probably more likely to continue under Biden than Trump because the Democrats really want to help out those who are suffering from COVID-19. I expect all of the COVID restrictions to last throughout 2021.
Americans are still not taking the Coronavirus seriously, especially when the average person weighs the risks and rewards for them of the situation. Let’s see, I might be sick for two weeks and the chance I would die is remote versus I can’t work or do what I want to have fun. The real problem is that our hospitals are full of serious cases and there’s no room for more.
This month’s figures don’t yet show the impact of the new COVID-19 spending bill, but it should start to show up next month. Think about it – the new stimulus bill handed out $600 per person or $2,400 for a family of four for everyone making under $75,000. If you are working and receiving your regular salary, however, then you don’t need the stimulus – and that’s a majority of Americans. But if you are unemployed and you need several thousand per month to live on – then the stimulus check does very little. So, it’s really misplaced money.
Notice that the number of US taxpayers in the table continues to rise – despite the media emphasis on COVID-19 deaths. The unofficial debt went from $153 trillion mid-year and now is listed at $158.43 trillion, up by $3 trillion just last month.
I started tracking debt-related data in two more tables which indicate how severe things are getting. This first table tracks bankruptcies, foreclosures, and employment figures — bankruptcies are getting worse, but foreclosures and employment are improving. This month’s data suggests that the government is manipulating the statistics because the figures changed dramatically – especially bankruptcies and foreclosures.
The second table tracks money supply figures, credit card debt, and the number of millionaires. We have about 40,000 more millionaires in the US than we did last month, and they make up about 5.5% of the US population.
Notice that we’ve had 7 straight months in which the number of US millionaires has gone up.
Part II: The Current Stock Market Type Is Bull Quiet
I monitor the Market SQN for timeframes from 5 weekly bars to 40 weekly bars. If you look at the price chart pattern for each of those periods, you can probably tell the direction –
- 200 days – Strong Bull at the end of December, Strong Bull again at the end of January
- 100 days – Bull last month, Bull again,
- 50 days – Bull last month, Neutral (sideways) now,
- 25 days – Bull last month, and Neutral now.
So now our measured periods range from Neutral for the shorter periods to Strong Bull for the 200 day period.
Let’s take a look at the weekly bar chart below for the S&P 500. The market made about a $7 trillion recovery since the bottom and has been setting new highs again. The S&P made 5 all-time highs during the month of January 2021.
The chart below shows the extreme changes in the market type direction which occurred quite suddenly almost one year ago – the fastest I have ever seen. Then look at the huge rise in July, the return to Neutral in October and now we are Bull again.
The next chart shows the volatility measurement for the last twelve months. At the beginning of 2020, volatility had been in the quiet zone for months, and then suddenly it went to volatile on its way to very volatile in March. We have been mostly in the normal range since last summer.
The next table shows the weekly changes for the four major stock indices for the last month and recent annual closing prices. Last year, the Dow was up 7.25%, the S&P was up 16% while the NASDAQ was up over 47%. Small caps were up 18% – behind the NASDAQ but ahead of the other indexes. January had mixed results also – the Dow and S&P were down while the NASDAQ and Russell were up.
On January 29th, 2021, according to the Wall Street Journal, 55 stocks made 52-week highs, while only five made 52-week lows.
Part III: Our Four-Star Inflation-Deflation Model
Three components of the model signaled inflation again in January after doing so in December but the model score went to zero.
Inflation has been at +1.5 or above for the past six months, but suddenly it’s back to zero? The model assumes Gold is a major inflation hedge (and a hedge for catastrophic times) but Bitcoin may be replacing gold for that role. Think about it – would you rather have Bitcoin or gold in your portfolio right now?
Look at what gold has done through the entire pandemic (10 months). In Mar 2020 it was $1,610 and closed Jan 29th this year at $1,863 – that’s a gain of 15.7%. In early March 2020, BTC was $8,870 and today it is $34,296 – a gain of 286.65%. As a result, we will add BTC as the 5th element in our model and we added prices going back through Dec 31, 2019. We’ll tally the new score with BTC and the old score without it.
Shadowstats.com adjusts the GDP by the original inflation calculation suggests that we have been in a recession since 2000 with just one-quarter of non-recession. The site also suggests that the last GDP reading was about a 10% drop. The US GDP from April to June plunged 34.3% on an annualized basis – that is the worst drop ever. But stocks are in a strong bull market and we’ve had a slight recovery in the GDP.
Shadowstats.com shows real inflation at about 9.5% right now based upon how inflation was calculated in 1980.
Part IV: Tracking the Dollar
USD closed at about 103 last March. On Jan 31st, 2021, it was 90.53. That’s a 12-point drop in ten months, however, it’s a slight gain over last month’s 89.94 value. Our World Market Model (see the SQN Report article below) has the US dollar ETF (UUP) in red. For the last few months, it’s been one of the worst-performing ETFs. UUP was one of the two worst performers in the whole model last month, however, it has a little better ranking this month at number 12 from the bottom. That’s one reason why the whole SQN® Report and table looks so bullish (green) – everything is measured relative to the value of the US Dollar.
For most of you reading this, the US Dollar is your base currency. Donald Trump oversaw an increase in our debt of about $8 trillion during his administration, $5 trillion in the last year. Hopefully, Biden could do a little better – but that’s unlikely.
Let’s look again at a few possible scenarios that might play out in 2021. Ranked from most likely to the least likely.
1) BTC will take over from Gold as the major protector of our fiat currency. This is not hard to judge because it is already happening. Janet Yellen was negative on cryptos because of their use in illegal activity (trivial compared to the illegal activity in cash US dollars) in her confirmation hearings as Secretary of the Treasury. The next day, however, she changed her tune a bit after being talked to by some major Wall Street Firms who want BTC to stick around.
2) COVID 19 will be around for a few more years. This assumes that many people will not take a vaccine shot, and we will be unable to reach herd immunity anytime soon. Also, the vaccines were released way too early with only one of five major questions answered for normal Phase III trials. People taking the current vaccines are basically guinea pigs and that’s why people who have been vaccinated still have to wear a mask and practice social distancing. The CDC is now keeping track of death rates after the vaccine (and trying to compare it with normal death rates for people of the same age). We also have the issue of the virus mutating as happened recently in the UK and South Africa. The new strains are much more contagious and in just one month has moved to dozens of more countries.
If COVID 19 is around for a few more years, then –
- BTC will have another 300% year in 2020 – which could happen anyway.
- Other cryptos such as ETH and some of the DeFi coins will also take off. This is even more likely and what I’m banking on in our new offer to Super Traders.
- Industries that are just hanging on for now (Airlines, Cruise Lines, Rental Cars, Hotel Chains, and other tourism/entertainment-based industries) will go bankrupt. Many more brick-and-mortar businesses will disappear.
- The rich will get richer and the divide between the rich and poor will become even wider.
- There will be much more social unrest.
3) In this scenario, the COVID 19 vaccines are effective and we reach herd immunity levels later this year. World unrest and economic malaise will improve.
4) We will have a major economic crash in 2021. This is not a prediction but just one of the scenarios that could play out in 2021.
For now, staying at home and limiting your contacts to only a few people is essential. This is also the best time possible to get a financial education and work on yourself. We are here ready to help with books, eLearning courses, and online workshops.
Until the February 2021 Update, I am not going anywhere. This is Van Tharp.