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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 wrong, simply remember that everyone can usually find lots of evidence to support their beliefs and refute others. 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 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
From late February to late March, we went from Strong Bull to Strong Bear. The market has never done anything like that before. We returned to a Strong Bull market type again and are now in Bull Volatile, however, we are facing a depression that could be potentially worse than the 1930s. Lots of companies are going bankrupt now and many more will go bankrupt in the coming year. We are seeing record unemployment and the dollar is crashing.
I keep wondering how the stock market can go up while we are in the worst economic crisis since the Great Depression. My guess is that the Federal Reserve is propping up the stock market. But I’m now keeping track of bankruptcies and foreclosures to get a better picture. I would also expect more social unrest, riots, etc. with so many people unable to pay their bills.
Most of the up movement in the stock market has been in the NASDAQ 100. The top 15 stocks and how much they are up in 2020 are in the table below. You’ll find that most of the up move in the stock market came from these 15 stocks – not everything else. And those 15 stocks (out of the 100 in the index) make up 51% of the NASDAQ 100 value. Notice how much they are up. For example, TSLA is up 411% and NVIDIA is up 129.8%. That’s why the whole market seems to be up – these are the primary movers of the market. There are others that are up nicely such as SHOP and DOCU – but the top 15 are most of the entire gain.
Apple, Cisco, Intel, and Microsoft are all part of the DOW 30.
The top stocks in the S&P 500 include MSFT, AAPL, AMZN, GOOG, FB, BRK.B, JNJ, Visa, PG, JPM, UNH, MA, INTC, VZ, HD, AT&T, PZE, MRK, and PEP. Those red ones were all part of the NASDAQ 100. Hopefully, you get the pictures. It only takes gains in the big stocks in all three indices to make everything look good.
These are the kind of conditions that make systems thinking important and why you should go with what is happening rather than what you think will happen.
US Debt Clock
Notice that the federal debt increased from $21.9 trillion in December 2019 to $26.82 trillion at the end of September. That’s an increase of $5 trillion (almost 25%) in nine months. Also notice that federal spending is about $3 trillion higher than federal income — and that will get much worse. The government started manipulating this data last month. The unofficial debt went from $153 trillion to $80 trillion and now is listed at $154.7 trillion.
I want to start tracking data in two more tables which indicate how severe things are getting. First, this table will track bankruptcies, foreclosures, and employment figures –
The second table will track money supply figures, credit card debt and the number of millionaires – Notice that bankruptcies are up a little, foreclosures are down a little (but the Fed owns nearly 1/3 of all US Mortgages now). Unemployment has improved by about 4 million, but I just heard about a lot of layoffs in the last few days, so I doubt if that will last. US millionaires are up over the last three months—from 5.50% of the US population to 5.53% over just the last two months.
Part II: The Current Stock Market Type Is Bull Volatile
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 – Neutral (sideways) at the end of August and still Neutral,
- 100 days –Strong Bull last month, Bull now,
- 50 days – Strong Bull last month, Neutral now,
- 25 days – Strong Bull last month, and Bear now.
So now our measured periods range from Bear to Bull.
Let’s take a look at the weekly bar chart below for the S&P 500. The S&P made 15 all-time highs during the month of August but the last new high was Sep 2, 2020.
The chart below shows the extreme changes in the market type direction which occurred quite suddenly – the fastest I have ever seen. Look at the huge change since mid-July.
The next chart shows the volatility measurement for the last twelve months. We have entered the Volatile range again in the last few weeks.
The next table shows the weekly changes for the four major stock indices for the last month and recent annual closing prices. The Dow is down about 3% in 2020. The S&P is up about 3% and NASDAQ up 30% on the year. Small-cap stocks have been crushed with the Russell 2000 down nearly 10%.
Part III: Our Four-Star Inflation-Deflation Model
Three components of the model continue to signal inflation –
*Prices as of 12:50 pm, Sep. 30, 2020
So, what if the COVID-19 pandemic lasts two years total? Would you expect massive inflation, a deflationary depression, or what? Inflation has been showing up in our model since July.
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 US GDP from April to June plunged 34.3% on an annualized basis – that’s the worst drop ever. But stocks are in a Bull market type and we’ve had a slight recovery in the GDP? According to Shadowstats.com, the real GDP data is much worse.
Part IV: Tracking the Dollar
USD closed at about 103 in March. On Sept. 30th at 1 pm it was at 93.89. That’s an 9-point drop in a few months. In our World Market Model (see the second article below), the US dollar ETF UUP is now red with a Market SQN® score of -1.72. UUP is still the worst ETF on the bottom last month it was at minus 2.25.
Conclusion
We have had a worldwide economic and market crash because of the coronavirus. This pandemic looks like it will be around for a long, long time – even though the Republicans are trying to get a vaccine released before the election. And it gets worse because apparently, a new hybrid strain of COVID-19 has come into play from Europe. This strain is much more contagious – but the fatality rate is about the same.
I listened to the first debate between Biden and Trump last night and it was a joke. Quite often, three people were talking at once and almost everything that came out of the president’s mouth was made up.
By the way, Trump used a mail-in ballot to vote. And I guess I’m still a registered Republican because I have received solicitations from the Republicans to vote by mail. It’s not just a Democratic party thing. I also received a text message telling me to call our Senator, Tom Tillis, and thank him for voting for Trump’s Supreme Court nominee. But this request was before Trump even announced a nominee. So I elected to tell Tillis what I think of someone who is willing to vote for a nominee without knowing anything about them except that they are a choice of the Republican president. I personally think democracy in the United States is the worst that it has been in my 74 years as an American.
Here’s an updated chart on coronavirus cases and COVID-19 deaths –
The US economy started to open up in June. We now have about 7.1 million COVID-19 cases which is about 2.1% of the total US population but herd immunity (70% of the population) won’t happen until 224 million people have been infected.
Staying at home and limiting your contacts to only a few people is essential for now. 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.
Precaution: October is typically the worst month of the year for the stock market. The old saying is “Sell in May and go away.” After October, we have the election. The market is usually stronger from November through January.
Until next month, I’m not going anywhere, this is Van Tharp.