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

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November 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. 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

The market has gone up 1.42% over the last 100 days but there have been no new all-time highs in that period. Last month the market direction was quite clear, however, this month it is not as clear. The 25 day market type is Neutral Quiet, the 50 day market type is Bull Quiet, and the 200 day market type is Neutral Quiet. Furthermore, the market has gone from volatile conditions in September to normal volatility starting October 6th to quiet volatility starting October 30^th. It stayed in the quiet range throughout November. Since the market only went down about 10% in August, the drop never developed into what people call an official bear market (down 20% or more). That still may happen but it seems much less likely now.

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%
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%
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%
Aug 31, 2015	$18.37 trillion	$3.16 trillion	$3.66 trillion	$729.7 billion	$753,533	$97.5 trillion	118.9 million	104.9M 88.2%
Sep 30, 2015	$18.41 trillion	$3.18 trillion	$3.68 trillion	$726.6 billion	$800,855	$97.7 trillion	119.0 million	105M 88.2%
Oct 31, 2015	$18.43 trillion	$3.26 trillion	$3.70 trillion	$736.9 billion	$805,560	$98.8 trillion	119.2 million	105M 88.1%
Nov 30, 2015	$18.71 trillion	$3.29 trillion	$3.72 trillion	$732.4 billion	$810,044	$100.3 trillion	119.4 million	105.1M 88.0%

So in 13 months, usdebtclock.org says our official debt has gone up by $1.4 trillion. Furthermore, the tendency for the government to manipulate our unfunded debt amount seems to have tapered off as it’s now the highest it’s been since November 2014 and has gone over $100 trillion again.

Incidentally, the website says there are 119.4 million taxpayers. It also says there are 160.6 million people receiving government support, however, I’m not sure how they determine that as some of the sections there are certainly duplicated. As a result, I add together US Retirees (49.1 million) food stamp recipients (45.2 million) and disabled people drawing social security (10.8 million). I don’t think there is any overlap here. Those groups total 10.1 million and that’s why I say that they constitute a group that’s 88.1% of the number of taxpayers. I could also include all government employees (23.7 million) as among those supported by taxpayers — but they do pay taxes. Remember about 10% of the taxpayers (11.9 million) pay most of the tax revenue.

Part II: The Current Stock Market Type Is Neutral (Sideways) 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 and 25-day market types are both Neutral (Sideways) Quiet. The 50-day type is Bull Quiet, while the Market SQN score for 100 days, our standard measurement, is Neutral and volatility is Quiet.

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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You can see from all three charts how over the last two months the market has gone up and volatility has quieted.

Below is a chart of the recent weekly changes in the three major US Indices. The NASDAQ 100 is now up 10% for the year, while the S&P 500 is up 1% and the DOW 30 is down 0.58%. Pretty much the same place as we were last month.

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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 in the economy and market levels, so understanding inflation and deflation can help traders understand some important big-picture processes. See the tracking table below for our inflation-deflation model.

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
Dec ‘13	25.66	46.22	1201.50	21.86	-1.5
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
Aug ’15	15.69	43.36	1135.00	23.42	-2.5
Sep ‘15	15.15	39.95	1114.00	22.66	-2.0
Oct’ 15	15.20	45.28	1142.35	24.08	-1.5
Nov’ 15	14.19	45.57	1061.90	24.56	-2.0

Here are the model components comparing prices at the end of September with two months back, six months back, and the contribution to the total score.

Month	DBC2	DBC6	XLB2	XLB6	Gold2	Gold6	XLF2	XLF6	Total Score
	Lower	Lower	Higher	Lower	Lower	Lower	Higher	Lower
Sep 15		-1		-1/2		-1		+1/2	-2.0

Notice that 14 out of the last 15 months have shown deflation. In such a climate, it’s interesting that Federal Reserve officials still talk about raising interest rates at their December meeting. I’m not sure that’s going to happen.

Also notice that banks are still not lending money — a deflationary force. This chart from the St. Louis Fed’s website shows the M-1 money multiplier is about 0.75 which means banks are lending about 75% of the money supplied by the Fed.

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The money multiplier figure used to be more than twice the current amount in the decade preceding the global financial crisis. It needs to be much higher than that to really stimulate the economy (and bring back inflation). Just to put today’s money multiplier level in perspective, around 1987 it was over 3.

Part IV: Tracking the Dollar

The US Dollar Index had a huge surge last month and is now pretty close to its April highs. It has definitely broken out of the range that it was in for the last six months. Traders seem to believe that the Fed will raise interest rates so this has definitely strengthened the dollar. What’s next? I have no idea.

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Conclusion

Some newsletter writers have said that when we have a sharp drop of nearly 10%, the market nearly always recovers strongly and to bet on that recovery. So far that seems to be the case.

Other pundits say we are going into a deflationary depression where cash will be king. Gold is hitting new five year lows and commodities are well down. In addition, our inflation/deflation measure has been showing deflation for more than a year. So these pundits could be right as well.

What’s the bottom line? Don’t listen to pundits. Notice what the market is doing. Right now the market is moving sideways and it has low volatility. Can you make money in a Neutral Quiet market type? If yes, then do what you do. If no, then your best bet is probably cash.

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.

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

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

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