June 2015 Market Update: Neutral Quiet Market Type by Van K. Tharp, Ph.D.

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June 2015 Market Update:
Neutral Quiet Market Type

by Van K. Tharp, Ph.D.

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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 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, that may be released as often as twice a month if there are significant market charges.

Part I: The Big Picture

US equities have spent the last 100 days going up 1.5%. Contrast that with the 10 new all-time highs S&P 500 made in the last 100 days (and in 2015). In June, however, the S&P 500 made no new high closes. This is a very deceptive market.

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	109.9M 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	104.5M 90.0%
Sep 30, 2014	$17.77 trillion	$2.98 trillion	$3.53 trillion	$707 billion	$730,321	$116.3 trillion	116.7 million	104.9M 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	105.1M 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	105.1M 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	104.4M 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	105.7M 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
Mar 31, 2015	$18.17 trillion	$3.15 trillion	$3.63 trillion	$723.3 billion	$757,614	$95.7 trillion	117.8 million	105.4M 89.5%
April 30, 2015	$18.21 trillion	$3.11 trillion	$3.61 trillion	$720.3 billion	$759,875	$96.0 trillion	118.1 million	105.3M 89.1%
May 29, 2015	$18.25 trillion	$3.12 trillion	$3.62 trillion	$720.3 billion	$761,889	$96.5 trillion	118.3 million	107.1M 90.5%
Jun 30, 2015	$18.29 trillion	$3.14 trillion	$3.63 trillion	$728.4 billion	$752,894	$97.0 trillion	118.5 million	105.1M 88.7%

So in three months, our official debt has gone up by $120 billion. Furthermore, the tendency for the government to manipulate our unfunded debt amount seems to have tapered off and now it seems to edge up slightly each month.

Incidentally, the debt clock says there are 118.5 million taxpayers. It also says there are 159.7 million people receiving support. However, I’m not sure how they determine that (as some of the sections there are certainly duplicated). As a result, I take US Retirees (48.7 million), food stamp recipients (45.5 million), and disabled people drawing social security (10.9 million). I don’t think there is any overlap here. They total 107.1 million and that’s why I say that they consist of 88.7% of the taxpayers. But remember about 10% of the taxpayers (11.8 million) pay most of the tax revenue. I could also include all government employees (23.7 million) as among those supported by taxpayers (but they do pay taxes).

Part II: The Current Stock Market Type Is Neutral Quiet.

My market type classification is not predictive but rather descriptive — rather than telling us what’s going to happen, it simply tells us what’s going on now. What’s going on now is a neutral quiet market.

I look at the Market SQN score for the 100 day period for the S&P 500 as my major indicator of market type. But we also look at the Market SQN^® score for 25, 50 and 200 days. Right now both the 100-day and the 200-day market types are neutral while the SQN score for the 50 and 25 day scores have turned bearish. Volatility is still quiet so don’t expect a roaring bear market anytime soon unless it goes up dramatically. But we could easily shift into a quiet bear by next month.

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 ATR percent volatility.
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Above, you can see that the market has vacillated between neutral and bull for most of the last twelve months and most of that has been in neutral territory. As you can see from the chart below, the volatility has been normal to quiet most of the year too — never making it to volatile. If you don’t understand market types and don’t have trading systems for this kind of market, neutral quiet is one of the most difficult market types in which to make money.
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Below is a chart of the weekly changes in the three major US Indices. The Dow is down slightly for the year, the S&P 500 is up barely and the NASDAQ is leading the pack.

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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 understanding inflation and deflation can help traders understand some important big-picture processes.

See 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
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
Mar’15	17.01	48.78	1187.00	24.11	-3.0
Apr’ 15	18.29	50.42	1180.25	24.13	-1.5
May 15	17.71	50.61	1190.50	24.60	+0.5
Jun’ 15	18.00	48.39	1176.00	24.38	-1.0

Here are the model components and how the prices looked at the end of June compared with two months back and six months back.

Month	DBC2	DBC6	XLB2	XLB6	Gold2	Gold6	XLF2	XLF6	Total Score
	Lower	Lower	Lower	Higher	Lower	Lower	Higher	Lower
June 15		-1		+1/2		-1		+1/2	- 1

Notice that nine out of the last 10 months have a tendency to show deflation. It’s interesting that in such a climate we get rumblings about the Fed raising interest rates this year — but I’m not sure that’s going to happen. And other countries are certainly trying to export their deflation to the US by devaluating their currencies. See the trend in the dollar below.

Part IV: Tracking the Dollar

The strong rise in the dollar now seems to be over. The US Dollar index made a double top, hit a new short term low in mid-April and then made a modest recovery. The uptrend seems to be over and right now, we seem to have a wide trading range. What’s next? I have no idea as this letter is not about prediction, just what is happening.

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Conclusion

A famous trading guru once said that quiet markets are followed by volatile markets and even I am willing to say that. So this sideways quiet market will give way to chaos at some time in the future and that will present some great trading opportunities. We’ll see if that happens this summer or later.

Until next month’s update, this is Van Tharp.

About the Author: Trading coach and author Van K. Tharp, Ph.D. is widely recognized for his best-selling books and outstanding Peak Performance Home Study Program—a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at [You must be registered and logged in to see this link.] His new book, Trading Beyond The Matrix, is available now at matrix.vantharp.com.

June 2015 Market Update: Neutral Quiet Market Type by Van K. Tharp, Ph.D.

June 2015 Market Update: Neutral Quiet Market Type by Van K. Tharp, Ph.D.

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