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NewsFebruary 2015 Market Update: Bull Quiet by RJ Hixson for Van K. Tharp, Ph.D.
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February 2015 Market Update: Bull Quiet by RJ Hixson for Van K. Tharp, Ph.D.
February 2015 Market Update:
Bull Quiet
by RJ Hixson for Van K. Tharp, Ph.D.
Editors note: This is an abbreviated version written by RJ Hixson for Van while he is in Australia.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. If my beliefs and your beliefs are not the same, you may not find them useful. 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 do 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. Just 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. 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), 2) the five week status on each of the major US stock market indices, 3) our four star inflation-deflation model plus John Williams' statistics, and 4) tracking the dollar. I will now report on the strongest and weakest areas of the overall market as a separate SQN™ Report. And that may come out twice a month if there are significant market charges.
Part I: The Big Picture
US equities had spent the months of December and January going sideways in about a 5% range. By the end of January, the trend and volatility were close to entering a Bear Volatile market type. February, however, brought a rising S&P 500 which broke out of its range and set some new highs. Equities are also looking better in a number of other countries (See the SQN Report below).
Late in the month, the USD also broke out of a range and hit a slight new high at a level seen last about ten years ago. Gold spent much of the last month losing recently gained ground. Deflationary forces continue to be stronger than inflationary forces. The media is reporting on more signs of strength in the US economy and the Fed is talking publicly about when to start hiking rates.
Bull Quiet
by RJ Hixson for Van K. Tharp, Ph.D.
Editors note: This is an abbreviated version written by RJ Hixson for Van while he is in Australia.
However, if your beliefs are not similar to mine, then this information may not be useful to you. Thus, if you are inclined to do 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. Just 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. 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), 2) the five week status on each of the major US stock market indices, 3) our four star inflation-deflation model plus John Williams' statistics, and 4) tracking the dollar. I will now report on the strongest and weakest areas of the overall market as a separate SQN™ Report. And that may come out twice a month if there are significant market charges.
Part I: The Big Picture
US equities had spent the months of December and January going sideways in about a 5% range. By the end of January, the trend and volatility were close to entering a Bear Volatile market type. February, however, brought a rising S&P 500 which broke out of its range and set some new highs. Equities are also looking better in a number of other countries (See the SQN Report below).
Late in the month, the USD also broke out of a range and hit a slight new high at a level seen last about ten years ago. Gold spent much of the last month losing recently gained ground. Deflationary forces continue to be stronger than inflationary forces. The media is reporting on more signs of strength in the US economy and the Fed is talking publicly about when to start hiking rates.
Debt Clock
The State of the United States | ||||||||
Month Ending | National Debt | Federal Tax Revenue | Federal Spending | Trade Deficit | Debt Per Family | Unfunded Liabilities | Taxpayers | People supported by them |
July 31 2012 | $15.93 trillion | $2.364 trillion | $3.632 trillion | $810 billion | $684,405 | |||
Dec 30 2012 | $16.42 trillion | $2.452 trillion | $3.540 trillion | $740.7 billion | $732,086 | |||
July 31, 2013 | $16.89 Trillion | $2.73 trillion | $3.535 trillion | $703 billion | $748,458 | Unfunded Liabilities | 115.2 million | 109.9 95.4% |
Dec 31, 2013 | $17.27 trillion | $2,82 trillion | $3,480 trillion | $692 billion | $751,294 | $127.2 trillion | 115.0 million | 108.5M 94.3% |
| Aug 31, 2014 | $17.70 trillion | $2.97 trillion | $3.53 trillion | $706 billion | $757,297 | $118.0 trillion | 116.5 million | 104.5 90.0% |
| Sep 30, 2014 | $17.77 trillion | $2.98 trillion | $3.53 trillion | $707 billion | $730,321 | $116.3 trillion | 116.7 million | 104.9 90.0% |
| Oct 31, 2014 | $17.9 trillion | $3.05 trillion | $3.53 trillion | $703.5 billion | $729,784 | $115.4 trillion | 116.9 million | 105.1 89.9% |
| Nov 29, 2014 | $18.0 trillion | $3.07 trillion | $3.55 trillion | $710.8 billion | $729,477 | $115.7 trillion | 117.1 million | 105.1 89.7% |
| Dec 31, 2014 | $18.04 trillion | $3.08 trillion | $3.57 trillion | $713.2 billion | $733,741 | $92.5 trillion | 117.3 million | 104.4 89.0% |
| Jan 31, 2015 | $18.10 trillion | $3.11 trillion | $3.59 trillion | $318.7 billion | $732,620 | $94.1 trillion | 117.5 million | 105.7 90.0% |
| Feb 28, 2015 | $18.14 trillion | $3.13 trillion | $3.60 trillion | $725.0 billion | $732,054 | $95.3 trillion | 117.7 million | |
| Aug 31, 2014 | $17.70 trillion | $2.97 trillion | $3.53 trillion | $706 billion | $757,297 | $118.0 trillion | 116.5 million | 104.5 90.0% |
| Sep 30, 2014 | $17.77 trillion | $2.98 trillion | $3.53 trillion | $707 billion | $730,321 | $116.3 trillion | 116.7 million | 104.9 90.0% |
| Oct 31, 2014 | $17.9 trillion | $3.05 trillion | $3.53 trillion | $703.5 billion | $729,784 | $115.4 trillion | 116.9 million | 105.1 89.9% |
| Nov 29, 2014 | $18.0 trillion | $3.07 trillion | $3.55 trillion | $710.8 billion | $729,477 | $115.7 trillion | 117.1 million | 105.1 89.7% |
| Dec 31, 2014 | $18.04 trillion | $3.08 trillion | $3.57 trillion | $713.2 billion | $733,741 | $92.5 trillion | 117.3 million | 104.4 89.0% |
| Jan 31, 2015 | $18.10 trillion | $3.11 trillion | $3.59 trillion | $318.7 billion | $732,620 | $94.1 trillion | 117.5 million | 105.7 90.0% |
| Feb 28, 2015 | $18.14 trillion | $3.13 trillion | $3.60 trillion | $725.0 billion | $732,054 | $95.3 trillion | 117.7 million | |
Van likes to highlight some of the numbers from the usdebtclock.org site each month to help keep everyone aware of the debt situation the US faces. It’s not just a US problem, however, as around the globe, numerous other countries face similar and even worse debt issues.
Of note in the last month, the unfunded liabilities have been creeping back up in the last three months now. What’s your reaction to “creeping back up” meaning an increase of about a trillion dollars per month?
Part II: The Current Stock Market Type Is Bull Quiet.
Last month, the Market SQN score was heading down steadily and was about to enter bear territory. Concurrently, the volatility chart showed an uptrend and an impending push into “volatile” territory. The short term trend had put the market on the verge of entering a Bear Volatile market type – in the literal or quantitative sense. In early February, however, the lines reversed and headed in opposite directions so that the month ended in a Bull Quiet market type.
As Van likes to point out, his market type classification is not predictive but rather descriptive – it tells us what’s going on now rather than what’s going to happen. The graphs below include a chart of weekly bars for the S&P 500 over the last year, the Market SQN® score for 100 days, and the percent volatility.
Of note in the last month, the unfunded liabilities have been creeping back up in the last three months now. What’s your reaction to “creeping back up” meaning an increase of about a trillion dollars per month?
Part II: The Current Stock Market Type Is Bull Quiet.
Last month, the Market SQN score was heading down steadily and was about to enter bear territory. Concurrently, the volatility chart showed an uptrend and an impending push into “volatile” territory. The short term trend had put the market on the verge of entering a Bear Volatile market type – in the literal or quantitative sense. In early February, however, the lines reversed and headed in opposite directions so that the month ended in a Bull Quiet market type.
As Van likes to point out, his market type classification is not predictive but rather descriptive – it tells us what’s going on now rather than what’s going to happen. The graphs below include a chart of weekly bars for the S&P 500 over the last year, the Market SQN® score for 100 days, and the percent volatility.
[You must be registered and logged in to see this image.]
In addition to showing the 100 day period data, Van also measures the scores for additional periods for a fuller market picture. The Market SQN scores for the 200 day, 100 day, and 50 day periods are all in Bull. The 25 day was in the Bull range over the last week or so but just went into Neutral.
Below is a chart of the weekly changes in the three major US Indices. All three indices are up for 2015 now with the NASDAQ leading the pack.
Below is a chart of the weekly changes in the three major US Indices. All three indices are up for 2015 now with the NASDAQ leading the pack.
[You must be registered and logged in to see this image.]
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. Here are the model components and how the prices look at the end of February compared with two months back and six months back.
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. Here are the model components and how the prices look at the end of February compared with two months back and six months back.
| Month | DBC2 | DBC6 | XLB2 | XLB6 | Gold2 | Gold6 | XLF2 | XLF6 | Total Score |
Lower | Lower | Higher | Higher | Higher | Lower | Lower | Higher | ||
| Jan 15 | -1 | +1 | -1/2 | -1/2 | -1.0 |
The total score of -1 means deflation is the dominant force but in February, it was less strong than it has been in the last six months when the scores have been -2 or lower. See from the tracking table below.
Date | CCI> DBC | XLB | Gold | XLF | Total Score |
Dec ‘05 | 347.89 | 30.28 | 513 | 31.67 | |
Dec ‘06 | 394.89 | 34.84 | 635.5 | 36.74 | |
Dec ‘07 | 476.08 | 41.7 | 833.3 | 28.9 | |
Dec ‘08 | 352.06 | 22.74 | 865 | 12.52 | |
Dec ‘09 | 484.42 | 32.99 | 1,104.00 | 14.1 | |
Dec ‘10 | 629.53 | 38.47 | 1,410.25 | 16 | |
Dec ‘11 | 564.37 | 33.5 | 1,574.59 | 13 | |
Dec ’12 CCI>DBC | 556.08 27.79 | 37.54 | 1,564.80 | 16.39 | 1 |
Feb ‘14 | 26.13 | 47.08 | 1326.50 | 21.70 | -3.0 |
Mar ‘14 | 26.12 | 47.28 | 1291.75 | 22.34 | +0.5 |
Apr ‘14 | 26.41 | 47.67 | 1288.50 | 21.96 | +0.0 |
May ‘14 | 26.03 | 49.08 | 1250.50 | 22.29 | +0.0 |
June ‘14 | 26.58 | 49.64 | 1315.00 | 22.74 | +2.0 |
Jul ‘14 | 25.32 | 48.65 | 1285.25 | 22.41 | +1.0 |
Aug ‘14 | 25.03 | 50.53 | 1285.75 | 23.36 | -2.0 |
Sep ‘14 | 23.22 | 49.59 | 1209.10 | 23.17 | -2.0 |
Oct ‘14 | 22.31 | 48.40 | 1164.25 | 23.84 | -2.5 |
Nov’ 14 | 20.42 | 49.16 | 1182.75 | 24.40 | -2.5 |
Dec ‘14 | 18.45 | 48.59 | 1199.25 | 24.73 | -3.0 |
Jan ‘15 | 17.40 | 47.69 | 1260.25 | 23.01 | -3.0 |
Feb ‘15 | 18.17 | 51.49 | 1213.70 | 24.35 | -1.0 |
Part IV: Tracking the Dollar
The U.S. Dollar has spent the last five weeks moving sideways. In the last two days of the month, however, a strong push up led the USD to breakout and close at its highest level since 2003. Here’s the daily chart for the last few months.
The U.S. Dollar has spent the last five weeks moving sideways. In the last two days of the month, however, a strong push up led the USD to breakout and close at its highest level since 2003. Here’s the daily chart for the last few months.
[You must be registered and logged in to see this image.]
Van has mentioned several times that many FX traders have made a lot of money in the US dollar over the last six months. As you can see from the monthly bar chart below, the rise has been impressive.
This is Van’s prescription for growth in the US economy. Politicians please read.
1) Kill deficit spending immediately by stopping wars and spending on what we mistakenly call “defense.” We can’t afford to be the world peace keeper any more. We spend more than a trillion per year on “defense.”
2) Make sure no more deficit spending continues by passing a law calling for a re-election of new politicians any year the government cannot spend within their means. (I heard this first from Warren Buffet and borrowed it).
3) Right now the U.S. education system cannot compete with those of many other countries outside of the US except at the university level. And our best universities are filled with brilliant foreign students. Great, let’s accept the situation as it is and allow the brilliant foreign students who getting masters and Ph.D. degrees to immediately become U.S. citizens instead of forcing them to return to their own countries to use the skills we taught them abroad.
4) Give a $50,000 tax rebate to any US citizen getting a Ph.D. in the United States to help them pay for their education or their education loans.
5) Allow US companies to compete in the world in a big way by eliminating the tax on the foreign earnings of US citizen living abroad. Taxing foreign earnings of US citizens living in the US is fine, but not those who must live abroad to help our corporations grow and who must also pay foreign tax on their earnings. In addition, the new tax laws requiring foreign banks to report on the assets of US citizens is totally killing our ability to compete overseas. A US company abroad is now required to have almost 100% foreign employees because US employees cannot get bank accounts that are necessary to live.
6) Reduce Corporate Income tax from some of the highest levels in the world to competitive levels. Do this partially by not taxing foreign earnings from US corporations that are used to stimulate the economy. This would eliminate the US trade deficit fairly quickly. Right now the US government is saying that companies like Apple that channel their profits into Ireland (9% corporate tax vs 39% in the US) have to be stopped from avoiding US taxes. A much better prescription would be to tax them 10% on money brought back to the US.
7) I now own a Tesla model S, P85D. It has 691 hp. and still gets over 250 miles from a full battery charge. I charge the car in my garage for about 4 hours once each week. That charge comes from nuclear power. And in May I plan to drive the car around the US using Tesla’s free supercharging stations. And it won’t cost me anything to do that. Right now the government gives people a $7500 credit for something that could totally eliminate the US dependency on foreign oil and dramatically reduce air pollution. Tesla has actually released their patents to the rest of the world. The model S actually met two of the criteria that I wanted in a car (great power -- 0-60 in 3.1 seconds) and great gas mileage (infinite). Let’s encourage the US to help Tesla (an American company) with their mission. Obviously, this recommendation is more of a personal bias.
Van will be back in the country to write next month’s update.
1) Kill deficit spending immediately by stopping wars and spending on what we mistakenly call “defense.” We can’t afford to be the world peace keeper any more. We spend more than a trillion per year on “defense.”
2) Make sure no more deficit spending continues by passing a law calling for a re-election of new politicians any year the government cannot spend within their means. (I heard this first from Warren Buffet and borrowed it).
3) Right now the U.S. education system cannot compete with those of many other countries outside of the US except at the university level. And our best universities are filled with brilliant foreign students. Great, let’s accept the situation as it is and allow the brilliant foreign students who getting masters and Ph.D. degrees to immediately become U.S. citizens instead of forcing them to return to their own countries to use the skills we taught them abroad.
4) Give a $50,000 tax rebate to any US citizen getting a Ph.D. in the United States to help them pay for their education or their education loans.
5) Allow US companies to compete in the world in a big way by eliminating the tax on the foreign earnings of US citizen living abroad. Taxing foreign earnings of US citizens living in the US is fine, but not those who must live abroad to help our corporations grow and who must also pay foreign tax on their earnings. In addition, the new tax laws requiring foreign banks to report on the assets of US citizens is totally killing our ability to compete overseas. A US company abroad is now required to have almost 100% foreign employees because US employees cannot get bank accounts that are necessary to live.
6) Reduce Corporate Income tax from some of the highest levels in the world to competitive levels. Do this partially by not taxing foreign earnings from US corporations that are used to stimulate the economy. This would eliminate the US trade deficit fairly quickly. Right now the US government is saying that companies like Apple that channel their profits into Ireland (9% corporate tax vs 39% in the US) have to be stopped from avoiding US taxes. A much better prescription would be to tax them 10% on money brought back to the US.
7) I now own a Tesla model S, P85D. It has 691 hp. and still gets over 250 miles from a full battery charge. I charge the car in my garage for about 4 hours once each week. That charge comes from nuclear power. And in May I plan to drive the car around the US using Tesla’s free supercharging stations. And it won’t cost me anything to do that. Right now the government gives people a $7500 credit for something that could totally eliminate the US dependency on foreign oil and dramatically reduce air pollution. Tesla has actually released their patents to the rest of the world. The model S actually met two of the criteria that I wanted in a car (great power -- 0-60 in 3.1 seconds) and great gas mileage (infinite). Let’s encourage the US to help Tesla (an American company) with their mission. Obviously, this recommendation is more of a personal bias.
Van will be back in the country to write next month’s update.
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”.
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