#849 August 2, 2017
  • Feature: August 2017 Market Update: Bull Quiet Market Type, by RJ Hixson
  • Workshops: This September Van Teaches a NEW Systems Thinking Workshop
  • Tips: July 2017 System Quality NumberTM Report, by RJ Hixson
  • FREE BOOK!: Trading Beyond the Matrix
New Innovations From Trading Psychology Expert, Van Tharp
Since I taught the last Systems Thinking Workshop, my understandings in this field have evolved greatly and deepened far beyond what I taught nearly a year ago. I will basically teach a new version of the workshop explaining my current thoughts, beliefs, and philosophies about my latest theory – the Matrix Thinking Meta-Model. Understanding it will help you begin to realize how YOU create everything around you.

You will learn how to see from multiple perspectives, why you should think in terms of probabilities all the time, and how to reach higher levels of consciousness. Using the Matrix Thinking frame will help you achieve an improved perspective of “you” and your world which will generate genuine new edges in your trading — and in every area of your life. —Van K. Tharp

Feature Article

August 2017 Market Update:
Bull Quiet Market Type
by RJ Hixson
for Van K. Tharp, Ph.D.
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. If your beliefs are not similar to mine, however, then this information may not be useful to you. Thus, if you are inclined to go through 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. 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 which allows us to get the closing data from the previous month. These updates cover 1) the market type (first mentioned in the April 30, 2008 edition of Tharp's Thoughts), 2) the debt statistics for the US, 3) the five-week status on each of the major US stock market indices, 4) our four-star inflation-deflation model, and 5) tracking the US dollar. I also write a report on the strongest and weakest areas of the overall market as a separate SQN™ Report. Significant market changes may mean the SQN Report comes out more than once a month. —V.T.

Part I: The Big Picture

So what are equity markets telling us now? The S&P chart since November clearly says “low volatility bull market”. Van’s market type agrees completely. Until something changes, this is what we have.

What is your reaction to this market? Are you fine with its steady ways or are you running out of patience for some “action?” As we say to the players during the marble bag game in Peak 101, “Notice your thoughts and feelings.”

Chart 1
Debt levels for the US and other countries remain a problem — a problem with relatively invisible symptoms. Two data points to consider — the US has $20 Trillion in national debt and unfunded financial commitments exceed $100 Trillion. The debt to GDP ratio and demographics present major challenges to the resolution of this debt which will have to be worked out one way or another. Van highlights this issue every month so that you don’t lose sight of it in the background. Continue to think through its consequences for the national economy, the global economy and the big picture process for your trading.

Part II: The Current Stock Market Type Is Bull Quiet

As Van says all the time — the market type tells us what is happening today — not what is going to happen tomorrow. Today, the market type is Bull Quiet.

We define market type based on the Market SQN for 100 days — which is in the Bull range. The Market SQN score for 200 days and 50 days is Strong Bull. The 25-day period direction is Neutral as the index advanced a meager amount in the last five weeks — though it did close at five new all-time highs in July.

As the S&P weekly bar chart shows below, the market has been advancing fairly steadily since the election in November last year.
Chart 2
The Market SQN chart shows that all of July was in the Bull category. Actually, the market has been in the Bull or Strong Bull ranges since January 24. See the chart below —
Chart 3
Volatility has remained in the Quiet range for some time. The last time volatility was in the Normal range was mid-October last year — and it was only out of Quiet for about two weeks. The last time volatility was in the Normal range for a longer period was from mid-2015 through early 2016. Volatility has been quiet for a long time —
Chart 4
Van uses the broadest of the major indexes (S&P) for his market type definition process. If we consider the other indexes for a moment, volatility in the Dow 30 remains very quiet as well but there has been some volatility showing up in the NASDAQ. Historically, the NASDAQ has been the more volatile index of the three majors but I lack statistical figures to tell you if it’s in its quiet range or normal range right now. That point aside, let’s say volatility starts showing up in the other indexes. What will you do?

The table below reports the three major US Indices levels through July 31. So far this year, the Dow is up 10.8%, the S&P is up 10.3% and the Nasdaq is up 20.9%. That’s a good half year performance.
Chart 5
Part III: Our Four Star Inflation-Deflation Model

Van’s Four Star model has generated mostly deflationary scores for the last few years but then the model signaled strengthening inflation through much of 2016. That trend has abated in the last eight months and the model has been relatively neutral overall for 2017. The tracking table below has historical and current year figures.
Chart 6
Gold and materials are showing inflation but commodities and financials are showing deflation — so we have a mixed picture. July’s score of +.5 is a relatively neutral score so various inflationary and deflationary forces are at cross currents right now.
Chart 7
Part IV: Tracking the Dollar

The US Dollar Index has dropped by more than 10% from its high in January. That’s a significant decline in six months. If the US Dollar is your home currency, your relative net worth has declined if you haven’t made more than 10% in the last six months. If you don’t travel internationally, however, you probably haven’t “felt” or noticed the recent drop in the USD Index.

Van travels internationally several times a year and pays attention to currency trends. He jokingly refers to the “Tharp Effect” where the dollar drops against the local currency whenever he makes plans to travel somewhere. He’s visiting London in October to present three workshops and so it’s a little funny (for us, not so much for him) to look at the GBP/USD chart right now. We’ll continue to watch that trend.

From a technical perspective, the USD Index set some important lows in 2015 and 2016. Those may be tested in the coming month or two but in the meantime, do you have plans to hedge should the slide continue?
Chart 8

Occasionally, I listen in on the banter at a local sports talk radio station. The breadth and depth of the topics they chat about continually astonishes me - the incessant talk, analysis, and speculation about every aspect of professional and college sports. Generally, the talk engages and entertains but I have to wonder if athletes ever listen in. All that talk may be interesting to the fans but it probably distracts players from what they need to do on the court or on the field.

Is the talk about markets any different for traders? If anything, the talk is even broader and even deeper than sports. Here’s but a minimal sample of some headlines and story topics from multiple sources over the last few weeks —

  • The S&P 500 hit another all-time high…does anyone care?
  • We are witnessing the development of a perfect storm.
  • This bull market will go higher and longer than anyone currently suspects.
  • US manufacturing growth remains strong.
  • “Trump Trade” fading?
  • Trump will be blamed for coming failing economy.
  • Investor bearish sentiment near 2017 lows.
  • The GFC sequel is here.
  • Recession due in 2017/2018.
  • Retail investors seek more risk.

How many traders are listening to the talk and trying to figure out what’s going on? How many of them then put on positions based on their interpretations of the talk and their forecast of market action? You can do that but if you ascribe to Tharp Think principles — what’s your primary job right now? To follow your rules and trade the market that we have — which is a Bull Quiet market type.

Just holding the major indexes since the market type went to Bull Quiet would have generated somewhere between 10-20% returns with minimal drawdowns. That’s not too bad, right? How would you guess that performance compares with traders trying to interpret all of the market talk and trading their predictions?
In a Bull Quiet market type, “trading” can be very simple — stay long the market and use a trailing stop. Simple? Yes. Easy? . . . Well maybe so, maybe no — that all depends on your psychology.

Eventually, the market type will change. You can and should consider various scenarios but Van would steer you clear of predicting what’s going to happen or when the change will happen. What do you do when the market type changes? You adapt your trading to the new market type — optimally with systems created for the new market type. (Hint — buy and hold won’t work in other market types.) Basing your trading on the market type is so much simpler than trying to forecast what the market is going to do and when. It’s also a lot more effective.

And for you bears, yes, winter is coming at some point but for now, just notice that summer is still here.

Workshop Schedule

August 2017
September 2017
Over the past 25 years, Van K. Tharp has modeled traders and the trading process, seeking answers to questions like, “Why do some traders make fortunes while others lose their nest egg?”

Van Tharp is a NLP modeler. To “model” effectively, you have to find out what behaviors and habits highly accomplished people have in common. Once you identify the common tasks that produce excellent results, you need to develop the beliefs, mental states and strategies that allow you to perform those tasks.
You do not trade the markets. You can only trade your beliefs about the markets.—Van K. Tharp

The Peak Performance workshop hones in on these common tasks and puts you in the driver's seat to take control of your trading success. During this three-day intensive course, you will come to understand how your mental states and beliefs play such a major role in your trading, and reality, your whole life.

Workshop Objectives:

  • How great traders approach their craft and learn a daily procedure that resembles what they do.
  • How you create your own experience in the market and how you are responsible for the results that you get.
  • Become more aware of some of your own psychological issues that affect your performance as a trader/investor.
  • Learn about expectancy, position sizing strategies and the power of big R-multiples through a simulation game. This game is also designed to help you observe your emotions in a setting in which only a small amount is at stake compared with what you will face in the market.
  • Learn some of the variables that affect your emotions and how you can gain control over them.
  • Learn to overcome self-sabotage through exercises done in the class.
  • Students will get guidance on how to develop an ongoing program to work on themselves using the Super Trader Program as a model.
  • Students will leave with a plan to make the maximum use of the workshop.
Since I taught the last Systems Thinking Workshop, my understandings in this field have evolved greatly and deepened far beyond what I taught nearly a year ago. I will basically teach a new version of the workshop explaining my current thoughts, beliefs, and philosophies about my latest theory – the Matrix Thinking Meta-Model. Understanding it will help you begin to realize how YOU create everything around you.

You will learn how to see from multiple perspectives, why you should think in terms of probabilities all the time, and how to reach higher levels of consciousness. Using the Matrix Thinking frame will help you achieve an improved perspective of “you” and your world which will generate genuine new edges in your trading — and in every area of your life. —Van K. Tharp

What I Will Share With You

Beginning on Day 1, I will outline the various concepts that make up system thinking as we know it,

  • What systems thinking is and the four major paradigms
  • What is in a system and understanding how function and emergence play a part
  • How humans are “reflexive meaning makers” and how knowing that makes you powerful
  • The problem with “what Science knows about reality”
  • Why some believe we can never really know reality, only actualities
  • Why “The map is NOT the territory” and the reason this is important for your success
  • How logical, linear thinking fails the test for successful trading

Later on, I will share how NLP can be contextualized into a framework of systems thinking, allowing you to move from a problem state to a desired state. We break down key components of NLP, such as the TOTE model (Trigger, Operate, Test, Exit).

I will also compare SMART goals with well-formed NLP goals, and how they can become part of your trading plan. We will also discuss the 5 different models that make up Robert Dilt’s Unified Field Theory of NLP and also walk through my Personal Change Technique.

October 2017 LONDON, ENGLAND
Seats are filling up fast in this popular, new location. Register now to secure your seats!
November 2017

The Super Trader Summit is in December, dates to be announced.

Trading Tip

July 2017 System Quality Number Report
The SQN Report
by RJ Hixson
for Van K. Tharp, Ph.D.
There are numerous ETFs that 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. I 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 1.47 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:

  • Dark Green: ETFs with very strong Market SQN scores > 1.47
  • Light Green: ETFs with strong Market SQN scores (0.70 to 1.47).
  • Yellow: ETFs with slightly positive Market SQN scores (0 to 0.70). These are Neutral/Sideways
  • Brown: ETFs with slightly negative Market SQN scores (0 to -0.7).
  • Red: Very weak ETFs that earn negative Market SQN scores (< -0.7).

This is basically the same rating scale that we use for the Market SQN Score in the Market Update. The world market model spreadsheet report below contains a cross section of currently available ETFs; excluding inverse funds and leveraged funds. In short, it covers equity markets around the globe, major asset classes, equity market segments, industrial sectors, and major currencies.

World Market Summary — Equities & Currencies

Each month we look at the equities markets across the globe by segment, region, and sector.

For the third month in a row, the US Dollar is the weakest currency. This month, however, UUP (the USD ETF) is also the second weakest symbol in the entire database. Because the World Market Model is USD based, much of everything outside the US looks strong.

Meanwhile, the US equities look neutral to moderately strong with all small-cap and mid-cap segments earning neutral scores while the three large cap segments are light green. There no very strong dark green segments in US equities this month. The sectors show the full range of Market SQN scores ranging from red to dark green. The other countries in the Americas geography show yellow to dark green. Global equities overall outside the US (CWI) are very strong.

Similar to the June results, Asia is strong again this month and probably stronger on a net basis. Four symbols had scores of over 2 - all related to China. Australia and India are the weakest countries with yellow scores. Every other country in Asia is light green or dark green (but less than 2).

Nearly everything in Europe is dark green and five countries have scores of 2 or higher. Ranked by strength, they are: Austria, Netherlands, Belgium, Spain, and Switzerland. Russia turned yellow in July after being red but the Middle East/Africa and South Africa issues stayed yellow. Emerging Europe strengthened to light green in July.
Chart 9
In the currencies, the US Dollar is the only red one and ranks at a very bearish score of -2.32. (You can see why if you look at the USD Index chart in the article above). The other red ETF in that group is not a currency; DBV uses a carry strategy which hasn’t been working well in 2017. The Euro and the Swedish Krona are the strongest currencies this month both with scores over 2. Every other currency has a bullish score except for Brazil’s Real, Japan’s Yen, and India’s rupee — those are all yellow, neutral. Van could not add Bitcoin directly to the model so instead, we added a proxy for it using GBTC, the Bitcoin Investment Trust. It’s dark green and the third strongest “currency” if you are OK calling it so. Several readers alerted Van to this offering after his recent article on cryptocurrencies. Once the SEC approves a Bitcoin ETF, we’ll probably switch over to that.

In the US stock market, Gaming and Software are the only two dark green sectors this month. Sectors in the strongest category have gone from eight (two months back) to four (last month) to two now. Light green continues to be the dominant color category. The model has the same number of yellow sectors (eight) and brown or red sectors (eight also) as last month. Unsurprisingly, volatility (VXX) is very weak as is Oil & Gas Equipment. Both of those are on the list of weakest ETFs.

Commodities, Real Estate, Debt, and the Top and Bottom Lists

Commodities are a mixed bunch — though there aren’t any red issues this month. Blended Commodities (DBC), Silver, Oil, Natural Gas and Agriculture are all brown. Base Metals and Livestock are a neutral yellow. Gold, Coal, and Global Agribusiness are light green. Global Water and Timber lead the asset class with strong scores.

Everything in real estate is dark green — a very strong group overall — though three of the four ETFs in the group benefit from a weak dollar.

Debt instruments turned from mostly yellow last month to mostly light green this month. Short-term, Corporate, and High Yield bonds are the three dark green ETFs in the group while TIP bonds are the only yellow symbol this month in the category.
Chart 10
The Top Ranking List:

Two months back, 11 of the top 15 ETFs had a Market SQN score over 3.0. Last month, nothing was over 3.0 but this month, we are back up to six symbols with scores over 3. The top list is showing several muni bond issues again. Preferred issues and international small cap issues seem to be other themes in the top list.
The Bottom Ranking List:

This month’s bottom list is stronger than last month’s list — there are two brown symbols whereas last month, we only had red symbols. Like the last two months, the weakest two ETFs had a score less than -2. Note — Mid-Term Volatility (VXZ) and the US Dollar (UUP) were the two symbols with scores weaker than -2. Other than volatility and energy related issues, it’s hard to spot other major themes in the bottom list.


Let’s look at the summary table which measures the percentage of ETFs in each of the strength categories. You can see the distribution of the database by Market SQN score in bullish, neutral and bearish categories just below with the July 31 figures at the bottom of the table —
Chart 11
The last few months’ mild trend of improving overall database strength continues. The database went from 57%/ 23%/ 17% last month to 66%/ 20%/ 11% in July — continuing what we have seen recently. Van’s World Market Model makes the effects of the weakening US Dollar more noticeable even if it has not seemed to have affected your day to day life.

What will happen in August? The model is no help here. It’s merely descriptive, not predictive so we’ll have to see what develops.

Be careful to base your actions upon what IS happening, not what you think might happen. 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.
NEW E-learning Course!
The Power of Position Sizing Strategies:
SQN Secrets Revealed
with Instructor RJ Hixson
If you've ever wanted to know more about creating effective Postion Sizing Strategies, we can now give you some powerful new tools to help you master this critical area of trading. Not only do you get a course with nearly 7 hours of instruction, you also get a FREE copy of Van's Definitive Guide to Postion Sizing Strategies Book and a set of spreadsheet tools to put your new knowledge to work. Read more about this exciting new course below to decide if it will help you with your trading goals.
If you've ever wanted to know how to:

  • Use a Monte Carlo simulator to understand what kind of R multiples your trading system could generate in the best case scenario, worst case scenario, and most likely range scenario,
  • Use each trading system’s SQN score to help you craft a distinct position sizing strategy for each system,
  • Develop position sizing strategies that help you reach your returns objectives while simultaneously avoiding your drawdown limits,
  • Implement an effective Market’s Money mindset and position sizing strategy,
  • Evaluate the probable effects on your equity from different position sizing strategies and variations of them.
Then you’ll want to learn the simple process and use the powerful tools found in our new Power of Position Sizing Strategies—SQN Secrets Revealed home study course.
Watch this short 4 minute video to learn a little about what is included and hear what the impact has been on people who have gone through this course.
Position Sizing Video

Free Book

FREE Book!
We pay for the book, you just pay for shipping.

Read Van’s Latest Book —
The Red Pill for Traders and Investors

Eleven traders tell their stories about transforming
their trading results and lives, in this 400 plus page book.

Below is a brief video on how powerful this book is to traders.

Cary, NC Workshop Information
For a list of nearby hotels for our Cary, North Carolina locations, click here.

Book your flight arriving to the Raleigh-Durham International Airport (RDU).

When traveling to a three-day course, it's best to arrive the evening before.
To help determine your arrival and departure times, see:

Questions? Click Here to Ask Van...


This is a supplement to our subscription based newsletter, Tharp's Thoughts.

800-385-4486 * 919-466-0043 * Fax 919-466-0408
Share this email with your network on LinkedIn