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Van Tharp

April 2014 Market Update

Market Condition — Bull Normal

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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: Van Commentary—The Big Picture

If you look at overall trends for the stock market, they are bullish but flirting with normal.  The Market SQN score has come way down from its high earlier this year, while the S&P 500 is still near its all-time high.   Is this bullish behavior or is it a tired market?

Gold and silver are not strong at all, despite a relatively weak dollar, however, there is little sign of inflation around (except from the folks). 

And the fundamentals of our economy are as weak as ever but are being supported by the Federal Reserve QE process.  

And that’s the big picture in a nutshell.

Debt Clock

The State of the United States

Month Ending

National Debt

Federal Tax Revenue

Federal Spending

Trade Deficit

Debt Per Family

Unfunded Liabilities

Workforce (taxpayers)

People supported by them

July 31 2012

$15.93 trillion

$2.364 trillion

$3.632 trillion

$810 billion





Dec 30 2012

$16.42 trillion

$2.452 trillion

$3.540 trillion

$740.7 billion





July 31, 2013



$3.535 trillion

$703 billion


Unfunded Liabilities

115.2 million


Dec 31, 2013

$17.27 trillion

$2,82 trillion

$3,480 trillion

$692 billion


$127.2 trillion

115.0 million


Jan 31, 2014

$17.32 trillion

$2.84 trillion

$3.494 trillion

$676 billion


$127.7 trillion

115.2 million


Feb 28, 2014

$17.38 trillion

$2.86 trillion

$3.503 trillion

$683 billion


$128.1 trillion

115.4 million


Mar 31, 2014

$17.57 trillion

$2.89 trillion

$3.519 trillion

$683 billion


$128.6 trillion

115.6 million


Apr 30, 2014


$2.91 trillion

$3.528 trillion

$683 billion


$128.9 trillion

115.8 million


Right now our total unfunded liabilities are $128.9 trillion (with most of that being Medicare and prescription drug liability) at $89.4 trillion and $22.3 trillion, respectively.   Social security unfunded liability is only a little less than our total debt at $17 trillion.

Today, our official debt is over $17 trillion and it’s going up almost a trillion dollars every year. Furthermore, the debt situation is so bad that the Federal Reserve has had to hold short term interest rates to almost zero and long term rates to very low numbers. This is killing the U.S. dollar and interest rates have nowhere to go but up.   In fact, betting on eventual higher interest rates is about as close to a certain bet (long term) as you could ever make.

According to the debt clock, our official national debt stands at $17.51 trillion, down $60 billion from the prior month.  How did that happen?  The US population is at 318 million with taxpayers standing at 115.8 million.   The Boomer retirement wave has begun and retirees now stand at 47.5 million.   Disabled people collecting social security stands at 14.3 million, while food stamp recipients total 46.2 million; so that’s 108 million people that are supported by the government (or the 115.8 million taxpayers). But really about 11.5 million taxpayers pay 90% of U.S. taxes.  This means that 11.5 million workers are supporting 108 million other people through the government. Do these numbers add up to you?  Do they seem sustainable?

Part II: The Current Stock Market Type Is Bull Normal

Each month, I look at the market SQN® score for the daily percent changes in the S&P 500 Index over 200, 100, 50 and 25 days. For our purposes, the S&P 500 Index defines the market.    On April 30th, the SQN 200 and 100 were both Bull (the SQN 100 was just up from Neutral the day before).  The SQN 50 and 25 were both Neutral.

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


Market volatility is at the edge of normal and heading towards the quiet range so this market may be less dangerous than last month, but at the end of the month the reading was normal.


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

Flash Update: I wrote this update on May 1st but it’s not going out until May 7th so you should know that the market type just shifted to Neutral Normal.   That is the market type for the 100 day period, 50 day period, and 25 day period.  In addition, we are not that far off of the highs of the year but the SQN score has already moved down to Neutral.   That same shift happened in 2007, just before the decline; in 2000 before the decline; and in 1987 before the decline.   Be careful in the market.

Below is a chart of the weekly changes in the three major US Indices.     All three indices are up for the year, but not by a lot.   For a year that set record highs, very little has happened since that time.   


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. 


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










Total Score











Feb 14










Last month was the first time in 13 months we saw a move toward inflation, although not a strong one.  This month our score was zero, so inflation is certainly not a concern.  Deflation has been predominant, as we continually point out, in large part because banks are not lending.  The money multiplier put out by the Fed is still at 0.7 rather than the normal 3.0 level that we tended to see where the stimulus was really working.   It’s interesting because the Fed discontinued the old data series and now does it on a seasonally adjusted basis.  Regardless, the graph still looks the same.

Part IV: Tracking the Dollar

Since its peak in July, the USD has been on a downtrend that recently gathered strength.  It’s now clearly broken $80 but last month was in a range between $80.6 and $79.3.   This range is quite dangerous and it is dangerous for the US stock market.  


General Comments

I’d like to show you a table of market SQN results for 100 days on the S&P 500.  The market hit its all time high close of 1890.90 on April 2nd but the market SQN was at only 0.98, far off its high of 2.02 back on January 14th.


S&P 500 Close

SQN Score





Highest Market SQN Score for 2014. 




All time high close on S&P 500.  Notice how much lower the Market SQN Score is than it was 2.5 months ago.




The Market SQN has been neutral and is only just above that range, despite the S&P remaining close to its all-time high.

I’ve been doing some market type research lately and this kind of behavior also occurred in 1987, in 2000, and in 2007.   Does this mean that we are going to get a crash?   That’s possible but I have no idea.  The market SQN does not predict.  It merely tells us what the market has been doing over the last 100 days up to now.  Stay tuned.

We held our Bear Market Workshop over the weekend from May 2nd to May 5th.  Not a lot of people registered which could be a sign that a major bear might not be far off.   Our greatest attendance ever at a workshop was in March of 2000 when we had 71 people at a stock trading workshop.   Lack of attendance at a bear market workshop might be a similar kind of sign. 

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 His newest book, Trading Beyond The Matrix, is available now at


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Trading TipVan Tharp

April 2014 SQN Report

There are numerous ETFs that now track everything from countries, commodities, currencies and stock market indices to individual market sectors.  ETFs provide a wonderfully easy way to discover what’s happening in the world markets.  Consequently, I now apply a version of my System Quality Number® (SQN®) score to measure the relative performance of numerous markets in a world model. 

The Market SQN score uses the daily percent change for input over a 100-day period. Typically, a Market SQN score over 1.45 is strongly bullish and a score below -0.7 is very weak. The following color codes help communicate the strengths and weaknesses of the ETFs in this report:

  • Green: ETFs with very strong Market SQN scores (0.75 to 1.5).
  • Yellow: ETFs with slightly positive Market SQN scores (0 to 0.75).
  • Brown:  ETFs with slightly negative Market SQN scores (0 to -0.7).
  • Red: Very weak ETFs that earn negative Market SQN scores (< -0.7).

The world market model spreadsheet report below contains most currently available ETFs; including inverse funds, but excluding leveraged funds.  In short, it covers the geographic world, the major asset classes, the equity market segments, the industrial sectors and the major currencies. 

World Market Summary

Each month, we look at the equities markets by segment, region and sector. Most of the world’s countries are now light green or yellow.   All of the US sectors are now either light green or yellow, and the same goes for the rest of the Americas except Mexico which is brown.  Europe is still mostly green, but now there are some yellows and Russia and Emerging Europe are still brown or red.  In Asia, Japan and China are weak, while Australia and India are light green.    


(To see a larger version of this chart, click here)

Currencies show the British Pound, the Indian Rupee, and the Brazilian Real are strong.  The Canadian Dollar, the US Dollar and the Yuan are weak. 

From an industrial sector standpoint, we find mostly yellow and light green.  REITs and Utilities are very strong but Aerospace, Building Materials, Energy, Oil and Gas, Healthcare, Pharmaceuticals, Networking and Technology are light green.  Retail and Media are the only brown areas. 

Commodities, Real Estate, Debt, Top and Bottom Lists

The next chart shows real estate, debt instruments, commodities and the top and bottom ETFs for the past 100 days. 


Agriculture and livestock are the only dark green commodities.  Natural gas, and global water are both light green.  Coal, steel, base metals, and silver are all still weak and everything else is yellow or neutral. 

US real estate is now strong, but Chinese real estate is negative, just like last month.  All the interest rate categories, however, are positive with Junk Bonds actually being dark green and above 2.0 and Corporate Bonds being strong.   Interestingly, Long Term Bonds are again stronger than Short Term Bonds for the second month in a row.   Either some people don’t seem to understand what’s going on in the world or they are making short term plays.   

The top scoring ETFs had three  SQN scores above 3.0 which is very very, stong.  These include two preferred stock groups and California municipal bonds.   The remaining 12 ETFs in the top 15 all have scores above 2.0.   I think this is the first time I’ve seen all 15 above 2.0.   There is lots of representation by various munibond ETFs.

Only two of the weakest ETFs are below -1.0.  These include Russia and the Chinese Yuan.  The weakest list  continues to include currencies and short funds.


Now let’s look at our newest table which measures the percentage of ETFs in each of the strength categories.  Based upon this, the downward trend we’ve been observing has halted but not convincingly.  45%  of the ETFs are bullish and 13.2% are Bearish.     


Very Bullish




Very Bearish


> 1.5

0.75 - 1.5

0 - 0.75

0 - -0.7

< - 0.7

January 31st, 2013






February 28th






March 31st






April 30th






May 31st






June 30th






July 31st






August 30th






Sept.  30th






Nov. 1st






Dec 1st






Dec 31st






January 31st, 2014






February 28th






March 31st






April 30th






What's Going On?

Fundamentals are still terrible but the stock market seems to be one of the key places to be even though a bear market could be right around the corner.  Be careful.

Until early May, this is Van Tharp.

The markets always offer opportunities, but to capture those opportunities, you MUST know what you are doing.  If you want to trade these markets, you need to approach them as a trader, not a long-term investor.  We’d like to help you learn how to trade professionally because trying to navigate the markets without an education is hazardous to your wealth.

All the beliefs given in this update are my own. Though I find them useful, you may not.  You can only trade your own beliefs about the markets.


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 His newest book, Trading Beyond The Matrix, is available now at

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