I always say that people do not trade the markets; they trade their beliefs about the markets. Consequently, 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, however, your beliefs are not similar to mine, then this information may not be useful to you. If you are inclined to perform 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. Know that I acknowledge that these are my beliefs and that your beliefs may be different.
These 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 and readable on our web site), 2) the five-week status on each of the major U.S. stock market indices, 3) our four star inflation-deflation model plus John Williams' statistics, and 4) the movement of the dollar. I now report on the strongest and weakest areas of the overall market in a separate SQN® Report. I may come out with that report twice a month if there are significant market changes.—Van K. Tharp 

Part I: Commentary—The Big Picture
The country survived a two-week federal government shutdown in the first half of October.  At the last minute, everyone agreed to suspend the debt limit until February 7, 2014 and restore funding to the sequestered budget levels through January 15.  So, come January/ February timeframe early next year, these same issues will come up again.  No political drama through the holidays?  What will we do?
The Peak workshops last month fell right in the middle of the government shutdown so the topic came up on occasion.  I found interesting a comment from someone who had lived a long life in many parts of the world.  He said something to the effect of Americans would do better to study the history of the Roman Empire rather than their own to get a better context for what is happening in Washington right now. 
What effects did the markets show for the “calamity” in DC?  Long-term treasuries were slightly lower at the end of the shutdown than they were at the beginning, but the market and the dollar were higher.  Actually, the S&P and the Dow Industrials indexes were in record high territory at the end of the month.  That picture might have been different had the issues not been resolved prior to a potential technical default but that was averted. 
Part of the shutdown was purportedly to help provide some focus of the size of the US debt.  Today, our official government debt is now over $17 trillion and is going up at a current rate of about a trillion dollars every year.   It’s not the Boomers who are on the hook for this growing debt— it’s the younger generations who will have to pay it off.  Stan Druckenmiller has been speaking at colleges recently explaining this point and he believes his young audiences are starting to get it.  The same former hedge fund manager also said that the Fed tapering will have a big effect on the markets when it happens.  He also went on to say and that the next Fed chairman (or chairwoman) will have a major impact on the QE policy.  Yellen is Bernanke’s heir apparent and has a reputation as an extreme dove, so we may not see tapering happening anytime soon.  Exchange rates and/or interest rates may force the issue at some point but... how about if we just deal with that later in keeping the spirit with Washington regarding the deficit and debt? (That’s a touch of sarcasm.  Have you considered your action plans should the dollar collapse or interest rates start to climb? Think through some scenarios and make plans now.)     
Here’s the update for some figures from the debt clock website so you can watch the changes in debt over time.  Some of the figures vary from month-to-month and may not make total sense — those variations, however, tend to be relatively small. 
Our national debt stands at $17.13 trillion.  That’s up from last month but you were probably expecting that.  The website puts the US population now at 317 million within which 144 million are employed and of those, 114.6 million pay income tax.   Those 114 million taxpayers help support the group of 109 million that includes retirees, the disabled, and those receiving food stamps.

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Part II: The Current Stock Market Type Is Bull Quiet

Each month, Van looks at the market SQN® score for the daily percent changes in the S&P 500 Index over 200, 100, 50 and 25 day periods. For our purposes, the S&P 500 Index defines the market.    The Market SQN for 200 days is strong bull while the 100, 50, and 25 day scores fall in the bull range.  Van uses the 100 day period to define the market type and 100 trading days back puts the start of that period in early June. 
In this first chart, you can see weekly bars for the S&P 500 and how the market continued its long-term uptrend in October.  It was hitting new all-time highs in the latter part of the month.

(to see the three following charts stacked and aligned, click here)

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The next graph shows the Market SQN score for a 100-day period which has been climbing since early October and is now solidly in the bull range. 

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Lastly, let’s look at the market volatility.   Market volatility touched the normal range in early October but then went back to quiet mode as the month moved on.  

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(to see the three previous charts stacked and aligned, click here)

The next table shows the activity of the three major U.S. indices at the closing Friday of each week for the last month.

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In October, all three indices showed very strong gains for the year ranging from 20% to nearly 30%.     
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 and market levels, so the inflation rate can help traders understand big-picture processes.  
Because the CRB:CCI index was discontinued on April 17th, Van switched his commodities measuring tool to the ETF called DBC.  He has kept the prior years’ CCI data (from 2005 to 2012) as a reference since the DBC data does not go back that far.

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Looking back over the most recent two-month and six-month periods provides the current month's score given in the table below.

	CRB2	CRB6	XLB2	XLB6	Gold2	Gold6	XLF2	XLF6	Total Score
	Lower	Lower	Higher	Higher	Lower	Lower	Higher	Higher
Oct-13	-1		+1		-1		+1		0

Commodities and gold were lower in both time periods while basic materials companies and financial companies were higher.  This data suggest that the deflationary pressures we have seen for much of this year have eased up and are balanced with inflationary pressures at the moment.  Every month this year has had either a deflationary or neutral score with the exception of January. This is in spite of nearly $1T of money creation by the Fed.  What do you make of that? 
Part IV: Tracking the Dollar
The US dollar has been in a downtrend since July.  In October, it may have found a bottom at previous swing lows in December, 2012 and February, 2013. 
There have been a spate of media articles very recently about traders positioning themselves for the approaching Fed tapering and adjusting their dollar holdings accordingly.  Maybe that’s the case for the large masses of uninformed traders which has caused the dollars very recent resurgence off of its lows. More likely, however, it’s the Tharp Effect in action. Van returns to the country within a week so a new strengthening phase may run for a few months - until he leaves the northern hemisphere’s winter for the Australian summer in February. 

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General Comments
Bull Quiet conditions make it appear everything is OK at the moment.  Janet Yellen will be taking over the helm of the Fed soon and maybe it’s steady as she goes with the QE.  Do these points make you feel comfortable investing in long-term positions?  Anyone who understands the underlying fundamental conditions probably does not gain much comfort in the current market type, though you may take advantage of them while they last.  You are best advised to keep tabs on the big picture and understand how market types develop.  Before we see bear market conditions, generally we would see an increase in volatility first. 
Van will be back to writing the update in December. 
These monthly market updates are not intended for predictive purposes; rather, they’re intended to help traders decide which of their trading systems should work best in the current market conditions. In bear markets—which are almost always volatile by nature—shorter-term strategies, and those that allow going short, tend to work better than long-only or intermediate/longer-term systems.
Which of your trading systems fit this current market type? Of course, this question implies that you have multiple trading systems and that you know how they perform under various market conditions. If you haven't heard of this concept or the other concepts mentioned above, read my book, Super Trader, which covers these areas and more, so that you can make money in any kind of market condition.
Crisis always implies opportunity. Those with good trading skills can make money in this market—a lot of money. There were lots of good opportunities in 2012, and many more to come in 2013. Did you make money? If not, then do you understand why not? The refinement of good trading skills doesn't just happen by opening an account and adding money. You probably spent years learning how to perform your current job at a high skill level. Do you expect to perform at the same high level in your trading without similar preparation? Financial market trading is an arena filled with world-class competition. Additionally, and most importantly, trading requires massive self-work to produce consistent, large profits under multiple market conditions. Prepare yourself to succeed with a deep desire, strong commitment and the right training.
About the Author: R.J. Hixson is a devoted husband and active father. At the Van Tharp Institute, he researches and develops new products and services that help traders trade better. He’s looking forward to joining Van in Sydney and hopes to take in an Sydney Opera House production and hop up to Manly Beach for a quick swim in the surf.  He can be contacted at “rj” at “vantharp.com”.