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#897 July 5, 2018
  • Feature: June 2018 Market Update: Bear Quiet Market Type by RJ Hixson for Van K. Tharp, Ph.D.
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  • Tips: June 2018 System Quality Number® Report The SQN® Report by RJ Hixson for Van K. Tharp, Ph.D.
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Feature Article

June 2018 Market Update:
Bear Quiet Market Type
by RJ Hixson for Van K. Tharp, Ph.D.
RJ's Photo
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.

Part I: The Big Picture

Van is on holiday right now — as is much of the US this week. We’ll keep this update brief and focused on the developments of the last month.

At the end of June, the S&P 500 is less than two percent away from where it started the calendar year. Does it feel that way? Given the steep runup in January, the big drop into the February lows and the sideways action with more volatility since then, the market definitely has a different tone than 2017. At the end of June, we are in a Bear Quiet market type.

It’s the week of July 4th here in the US, a holiday week for many celebrating the birth of our country. Happy Birthday USA. Not a bad time to review a few key numbers – like the level of money the country (read taxpayers) owe in government debt – currently $21.2 trillion.

How much is a trillion dollars anyway? For help, I found this folksy visualization on YouTube envisioning various large amounts of money in Lambeau Field, home of Van’s beloved Green Bay Packers. Granted, the US debt was “only” $15 trillion when the video was made so you will have to add another 6 stories or so of $100 bills to get to the proper height of the stack for today’s debt number.

Part II: The Current Stock Market Type Is Bear Quiet

Van uses the Market SQN for 100 days as the official market type direction. 100 trading days back from June 29 was February 7. Just looking at the S&P 500 chart below using weekly bars, you might guess that we might be roughly sideways since then.
In the last half of June, the Market SQN score was in Bear territory though it popped into Neutral (light blue in the chart below) on the last two trading day of the month. Van had a similar situation last month and I’ll follow his lead using the predominant direction for the month. We have a Bear market because two days does not define yet a shift in market direction. Here are the other periods we monitor for the Market SQN based market direction: 200 days — Bull, 50 days — Neutral, 25 days — Bear.
Volatility remains low, in fact it’s back in the Quiet range now —
The next table below shows the weekly changes in the three major stock indices over the last month compared to recent annual closing prices.
From the 2017 close, the Dow has fallen marginally, the S&P has risen marginally, and the NASDAQ is the strong performer of the three — up 10%. Van does not track the Russell 2000 index in these pages but it also shows strength with about a 7% gain for the year.

Part III: Our Four-Star Inflation-Deflation Model

Over the last two and six month periods, commodities and financials are higher while gold is lower. Basic materials are mixed by this measure so the model generates a slightly inflationary score for June. See the numbers below —
After indicating strong inflationary forces in the second half of last year, the model continues to show mild inflation. It has been about eighteen months since we have seen a significant deflationary score.

Part IV: Tracking the Dollar

Trump has not let up on his tariff talk recently but that doesn’t seem to be having an adverse effect on the Dollar. After a decline and consolidating for much of the last twelve months, the USD started climbing mid-April and continues —

Some details follow for the breakdown of the 125 trading days since Jan. 2, 2018. By the number of days, here’s the market direction –

  • 23 Strong Bull
  • 26 Bull
  • 62 Neutral (sideways)
  • 14 Bear

And these are the number of days by volatility rating –

  • 37 Volatile
  • 45 Normal
  • 43 Quiet

What do you make of those numbers? One takeaway — trying to trade Bull Quiet market type strategies or systems (buy and hold) would not have worked well from a psychological standpoint or from a financial standpoint for the last six months. Traders who have different systems for different market types would have been able to perform better over the last two quarters. (If you need ideas about how to trade well in a sideways market type, consider attending the Sideways Market Strategies Workshop next month. More information below.)

We now have half of the trading year “in the can” and it may be a good point for a periodic review. The Dow and S&P are within two percentage points of where they started the year. If you trade equities, how do your trading results compare? Are you on plan or off? (Do you even have a plan written down?) What adjustments, if any, do you need to make for the second half of the year?

Today, we have a Bear Quiet market type. Van’s research shows this market type has been relatively rare in occurrence and short lived in duration. That may be the case now but there’s no certainty of it — it could go on for some time. When Bear Quiet markets have ended in the past, the tendency has been for them to move either to a sideways direction or stay in a bearish direction and shift to normal or higher volatility. What will you do if either of those shifts happens? As a trader who follows Tharp Think principles, you are not entering any positions ahead of time planning for a market turn. Instead, you trade the appropriate systems for the current market and pay attention to the evolution of market type. When it does change, you can be ready with the appropriate systems then too.

Will the bulls or the bears take control and drive the markets with more direction in the second half? Will volatility increase or stay quiet? Leave the predicting to the newsletter sellers. Trade the current market type and continue to monitor the big picture.
Attend Forex and Sideways back-to-back in August to
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Instructor Kim Andersson discusses some of the objectives of her upcoming workshop "Sideways Market Strategies" in the video below.
video - sideways

Trading Tip

June 2018 System Quality Number® Report
The SQN® Report
by RJ Hixson for Van K. Tharp, Ph.D.
RJ's Photo
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.

The US Dollar continued to grow stronger in June which affects the entire model in various ways. ETFs representing any interests outside the US become relatively weaker as a result and you will see that below in the tables.

Overall, the US market segments looked mixed at the end of June. The smaller cap issues across the growth/value spectrum are green while the mid and large cap are largely yellow. The Dow Industrials are the only negative US equities segment in this report.

To the south, the other Americas country markets are brown or red – very weak. To the north, Canada is yellow.

Asia is mostly brown again this month with the exception of China which is yellow and just barely positive. Malaysia, Singapore, and Thailand are all red. Thailand is quite weak with a score of -1.5.

Europe remains weak with everything either red or brown. The least weak country in Europe is the UK at -.13 while the weakest are less than -1.0 – Austria (-1.12) and Belgium (-1.23).
SQN Chart 1
In currencies, two ETFs are green and the rest are brown or red — most are red. With the USD on the rise for the last two months, the other currencies are relatively weaker. The only other green currency ETF is DBV which employs a carry trade strategy — and which was down for much of 2017. Among the weakest currencies are the Swedish Krona (-1.81), the Brazilian Real (-1.47), and the Swiss Franc (-1.40). While the Bitcoin symbol GBTC has only a moderately weak score right now, Bitcoin itself is down about 70% from its December, 2017 peak.

Again, no US sector symbols were dark green in June with the colors ranging from yellow to light green. Oil & Gas Exploration (XOP) has the highest score at 1.23. Other green sectors include Metals & Mining, REITs, Utilities, Media, and Software. Consumer Staples (XLP) has the weakest score for US Sectors at -.68.

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

With the exception of a green oil ETF (USO), the rest of commodities are yellow, brown, or red. Gold and Base Metals are the weakest commodity issues at -.90 and -.86 respectively. Coal is the other red commodity with a score at -.86.

Interest rate products don’t look as bad in June as they have in recent months. TIPS, 10 Year bonds, and 20 Year+ bonds are yellow this month. Corporate bonds are red and the rest of the category is brown. As Van has mentioned, bonds are not a place for hiding now with interest rates bottoming and turning up.
SQN Chart 2
Across the board, real estate ETFs are brown.

On the list of top scoring ETFs in the model's database, no ETF scored higher than 2.0 this month — unlike the previous three months where two had earned scores of >2.0 each month. Themes from the top list in June include health care, small caps, the USD, and energy.

The weakest ETFs are all red. The weakest five ETFs in the database all have scores lower than -2.0, a very weak score. Further, the fifteenth weakest ETF this month has nearly the same score as the number one weakest ETF last month. The number of emerging market debt issues on this list shows a very visible consequence of a strengthening USD.


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 below —
SQN Chart 3
Part of the high concentration of ETFs in the Bearish category in May shifted into the Very Bearish category in June. The Bullish/Neutral/Bearish breakdown for the model this month is 13% / 28% / 59% — a bearish stance. This compares to 66% of the ETFs being bullish just five months back. We’ll see what develops in the model in July.

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.

Until next month this is RJ Hixson for Dr. Van Tharp.
Two Dates - Two Countries
Peak Performance 101 Workshops

July 13-15 in CARY, NC

October 12-14 in LONDON, ENGLAND


July 2018 - US

$700 Early Bird Discounts for these workshops expire TODAY, July 5th!
The Peak Performance 101 workshop is the baseline workshop for all traders who want to improve their performance in the markets.

It's been Van Tharp's cornerstone workshop for over three decades. Read more to learn the benefits you will walk away with. Plus, we have a satisfaction guarantee. If by noon on the 2nd day you are not happy you can return your workbook and receive a FULL refund. No problem.

Peak Performance 101 in July is a very important workshop to put on your calendar if you want to qualify for and apply to the Super Trader program. Why? The price for the program goes up on August 1, 2018 and Dr. Tharp has additional discount offers for those who attend in July.
Learn the Mental Secrets for Getting What You Really Want in Peak 204!

The material covered in this course will be information you can use to improve your life and your effectiveness.

The material will also be cutting-edge. It's not the sort of thing you can learn anywhere else. This workshop will probably be the only place that you could possibly pick up all of this unique information together.

Most importantly, the material will be presented in a practical way with plenty of exercises so you can incorporate the strategies you learn right into your daily life. When you leave the workshop, the most important strategies will become part of you.

Remember, this is a very exclusive workshop. It requires that you’ve attended Peak 101. We will be doing a lot of work with sub-modalities so you should at least have a little experience working with submodalities.

In addition, you can expect highly motivated, like-minded, success-oriented traders like you to join you in this incredible experiential workshop.
August 2018 - US
No matter what time frame you trade or what method you use to measure them, Sideways markets happen between 59% and 65% of the time! And even though they appear a majority of the time, Sideways markets are rarely discussed, even in professional trading circles. Until now....

Kim is a 2015 Super Trader Graduate from VTI. Before she completed her studies with us, she had earned a Masters in Systems Engineering - which is no small feat! She has also served as an IT Security Consultant to the Pentagon, while also performing her duties with the Canadian Air Force.

She currently works as a Cyber Security Engineer at Lockheed Martin/Leidos and trades her systems part-time, finding a work/life balance that works for her and her family.

With over 1,850 trades completed, Kim has the solutions AND THE EXPERIENCE to lead you in a Sideways Market.

She has put in a tremendous amount of work and effort in to bringing this unique training out into the open. Originally designed with our Super Traders in mind, Kim and I decided to develop this material so that all traders or investors could come to the workshop and take home this critical information on this underappreciated market type.

This means that enrollment is limited as many seats will be filled with students from our elite Super Trader program.

If you think you are ready for a fast-paced, hands-on event hosted by an instructor, 100% dedicated to teaching you how to effectively trade Sideways markets, make plans to join us this August 17th-19th.
September 2018 - US
The How to Develop Winning Systems Workshop teaches you what you need to know to develop your own system. The material you will learn is not market or time-frame specific. So whether you trade stocks, futures, currencies, gold, etc., or whether you place 50 trades per day or 50 trades per year, you will learn all of the components that work in any system. With this knowledge you can both modify existing systems to fit you or the market type better, or master your own system development.

Two locations to choose from, Cary, NC in September and London, England in October!

The Peak Performance 202 Workshop is divided into three sections covering 4 days:
  • How you are programmed to follow the path that others want you to follow.
  • The various games that you play.
  • Personal reinvention.

Past participants say this was one of the most significant workshops they had ever attended. You will leave with a new sense of purpose and a new direction and a support team behind them.
October 2018 - US
November 2018 - US

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