July 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, 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 2.9%. During the 100 day period ending June 30, the market was up 1.5% but it had also made 10 new all-time high closes. In the last 100 days, there were only five new all-time high S&P 500 closes — and none of those were in June or July. As I have mentioned recently, paying attention to certain aspects of this market can be deceiving.

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%

Jul 31, 2015
$18.32 trillion
$3.15 trillion
$3.65 trillion
$723.4 billion
$753,212
$97.2 trillion
118.7 million
105.0M
88.4%


So, in three months, our official debt has gone up by $110 billion. Furthermore, the tendency for the government to manipulate our unfunded debt amount seems to have tapered off as now that debt figure is the highest it’s been since Nov 2014.

Incidentally, the debt clock site ([You must be registered and logged in to see this link.] says there are 118.7 million taxpayers. It also says there are 159.8 million people receiving support, however, it looks like the site might duplicate some of its categories for people. As a result, I add together US Retirees (48.8 million), food stamp recipients (45.3 million), and disabled people drawing social security (10.9 million). I don’t think any of these categories overlap and they total 105 million people. That’s why I say that these government support recipients are 88.4% the size of the taxpayer base. I could also include all government employees (23.7 million) as among those supported by taxpayers (but they do pay taxes). Remember that 10% of the taxpayers (11.8 million) pay most of the tax revenue.

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.

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 the 200-day market type is bull. The 100 and 25 day types are neutral but the 50 day market type is bear. Overall, the mixed picture says sideways market. Volatility is still quiet so don’t expect a roaring bear market unless volatility goes up dramatically, but we could easily slip 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.



In the second chart above, you can see that we have vacillated between neutral and bull for most of the year but most of the year has been spent in neutral territory.

As you can see from the third chart, the market has had normal to quiet volatility most of the year — never making it into the volatile range. Neutral quiet can be one of the most difficult market types in which to make money.

Below is a chart of the weekly changes in the three major US Indices. The Dow is down for the year, while the S&P 500 is barely up and the NASDAQ is leading the pack.



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 for this month’s prices on model’s components and the total score. 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

Jul’ 15
15.73
45.94
1098.40
25.18
-2.5



Notice that 11 out of the last 12 months have a tendency to show deflation. In such a climate it’s interesting that we get rumblings about the Fed raising interest rates in the coming months. But I’m not sure that’s going to happen. Meanwhile, other countries continue trying to export their deflation to the US by devaluating their currencies (see the trend in the dollar below).

Here are the two month and six month price comparisons for each model component —

Month
DBC2
DBC6
XLB2
XLB6
Gold2
Gold6
XLF2
XLF6
Total Score


Lower
Lower
Lower
Lower
Lower
Lower
Higher
Lower
 

July 15
 
-1
 
 -1
 
-1
 
+5
- 2 .5


Part IV: Tracking the Dollar

The strong rise in the dollar that began twelve months ago now seems to be over. It made a double top, hit a new short term low in mid-May and since then, has made a modest recovery. Right now, the USD seems to have entered a wide trading range. What’s next for the dollar? I have no idea as this letter is not about prediction, just what is happening.



Conclusion

I’ll say again what I said last month – quiet markets are followed by volatile markets. This sideways quiet market will give way to a more directional and a more volatile market type at some point in the future — which will present some great trading opportunities. We’ll see if that starts in the last part of the summer or sometime later in the fall.

Until then and 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.