Tharp's Thoughts Weekly Newsletter

The Van Tharp Institute   -  www.vantharp.com

May 02, 2007 — Issue #319

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NEW! London Workshops: Blueprint for Trading Success and Systems Development

Article

Monthly Market Update by Van K. Tharp

Trading Education Peak Performance Home Study Course
Trading Tip

Top Notch Internet Resources IV, by D.R. Barton, Jr.

Melita's Corner

Humbled by Teens, by Melita Hunt

 

Workshops

London Workshops

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How to Develop a Winning Trading System that Fits You

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Feature

 

 

 

Market Update for May 2, 2007

1-2-3 Model In Yellow Light Mode

by
Van K. Tharp

Look for these monthly updates on the first issue of each month. This allows us to get the closing month's data.  In these updates, we’ll be covering each of the major models mentioned in the Safe Strategies book:  1) the 1-2-3 stock market model; 2) the five week status on each of the major stock U.S. stock market indices; 3) our four star inflation-deflation model; and we’ll be 4) tracking the dollar.

Part I:  Market Commentary

The Federal Reserve has an interesting conflict to resolve.  First, if they do not lower interest rates, I think that a recession is inevitable.  Housing prices have gone down for eight months in a row and between February and March sales of existing homes fell 8.4%.  It’s been housing that has held up the economy, so this is not good news. 

We have signs of inflation, as I’ve stated before in this column, but GDP growth has gone down from a growth rate of 5.6% last year to 1.3% now.  Under normal circumstances, I think the Federal Reserve would have already started to lower interest rates.  But these are NOT normal circumstances.

We also have a potential dollar crisis.  The dollar is near a historically low value.  If it drops any lower (below 79), then it could plunge and that’s the last thing that the Federal Reserve wants to happen.  But what will happen when the Federal Reserve starts to lower interest rates?  People will take their money out of dollars to find a higher yielding currency and the dollar will plunge.  And that’s not good at all.

We are planning on doing two workshops in London in July.  I’ve noticed it takes more than $2 to get one ₤1.  I thought it was bad the last time I was in London when the pound was worth about $1.80. (Good news though for those using the pound to pay for the workshop…now is a good time for you)

It’s a delicate balancing act and I’m not sure what is going to happen.  And we are already reaching the seasonal period (May through November) when the market tends to go down.  Watch out below!!!  But most importantly, watch what the stock market is doing and what the dollar is doing.  The market still seems to be moving up (but with very low volatility) and the dollar seems to be down to flat.

Part II: The 1-2-3 Stock Market Model Is in YELLOW LIGHT MODE and that’s good for stocks

We’ve been in yellow light mode since December 29th.  And the average yearly increase in the S&P 500 is about 10.9% during yellow light mode.

Let’s look at what the market has done over the last five weeks and compare that with where the averages were December 31st last year.  This is given in Table 1.

Table 1: Weekly Changes for the Three Major Stock Indices 
  

Dow 30 

S&P 500  NASDAQ 100 
Date  Close  % Change  Close  %Change  Close  % Change 
Close 04  10,783.01    1211.12    1621.12   
Close 05  10,717.50 -0.60% 1248.29 -3.10% 1645.2 1.50%
Close 06  12,463.15 16.29% 1,418.30 13.62% 1,756.90 6.79%
30-Mar-07 12,354.35    1,420.86    1,772.36   
6-Apr-07 12,560.83 1.67% 1,443.76 1.61% 1,812.94 2.29%
13-Apr-07 12,612.13 0.41% 1,452.85 0.63% 1,816.85 0.22%
20-Apr-07 12,961.98 2.77% 1,484.35 2.17% 1,845.89 1.60%
27-Apr-07 13,120.94 1.23% 1,494.07 0.65% 1,891.06 2.45%

The market is continuing to rise and the major averages are all up on the year.  We’ve recovered from the short-term collapse of the Chinese stock market, and Dow is even making new highs.  But will those gains (in fact, can they) continue?  I have a tendency to doubt it.

As of the close of the year, 71.4% of the market consisted of positive efficiency stocks.  As of April 30th, it was at 81.82% which is the strongest reading I’ve had since I’ve been keeping track of the overall efficiency of the market.

Part III: Our Four Star Inflation-Deflation Model

As I’ve stated many times in these monthly updates, we are in an inflationary bear market.  The bear market is not necessarily reflected in prices but in PE ratios.  PE ratios will continue in a downtrend even though the Dow is making new highs.  The inflation is obvious, but simply masked by government statistics. 

Okay, so now let’s look at the results for the last six months. 

Date

CRB

XLB

Gold

XLF

 

 

 

 

December 30, ‘05

347.89

30.28

513.00

31.67

October 31, ‘06

383.92

33.33

603.75

35.43

November 30 ‘06

408.79

35.00

646.70

35.68

December 29, ‘06

394.89

34.84

635.70

36.74

January 31, ‘07

393.89

36.25

650.50

37.08

February 28, ‘07

410.64

37.45

664.20

35.95

March 31, ‘07

407.45

37.95

661.75

37.57

April 30, ‘07

403.54

38.62

677.00

37.01

We’ll now look at the two-month and six-month changes during the last six months to see what our readings have been.

Date CRB2 CRB6 XLB2 XLB6 Gold2 Gold6 XLF2 XLF6 Total Score
October Lower Higher Higher Higher Higher Higher Higher Higher  

 

 

+1/2

 

+1

 

+1

 

-1

+1.5

The results of this model are much more sensitive (I believe) than the model I presented in Safe Strategies for Financial Freedom.  This model once again shows that inflation is winning slightly.

Part IV: Tracking the Dollar

The U.S. dollar is still looking weak.  It was relatively flat for about six months and then it started a major fall against the Euro, which is still going on.  This is another reason that the Federal Reserve needs to keep rates high. When interest rates are high, people are attracted to the dollar.  But when rates are falling, they will dump it quickly.  The IMF has already said that the dollar, at current rates, is 35% overvalued.  Can you imagine the impact of the dollar falling another 35%?  The current reading of 79.87 is the lowest rating I’ve seen since I’ve been tracking it and there is little support below 79.

Month  Dollar Index 
January-05 81.06
January-06 84.29
February-06 85.05
March-06 85.01
April-06 83.88
May-06 80.63
June-06 81.51
July-06 81.94
August-06 81.18
September-06 81.59
October-06 82.36
November-06 81.49
December-06 80.89
January-07 82.37
 Feb -07  82.07
March-07 81.23
April-07 79.87
 

Until May’s update, this is Van Tharp.

 

About Van Tharp: Trading coach, and author Dr. Van K. Tharp, is widely recognized for his best-selling book Trade Your Way to Financial Fre-edom and his 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 www.iitm.com.

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“Your course is the most powerful material I have ever come across on trading. It is challenging and therapeutic for those who want to be better traders and less neurotic in their personalities.” —J.M. 

“A few months ago I purchased your ‘Peak Performance Course.’ I can honestly say it’s the best investment I have ever made towards my career and aspiration to trade my own money from home.” —E. M. 

 

Trading Tip 

Top Notch Internet Resources

Part IV

One of My Favorite Sites

By D.R. Barton, Jr.

  

Today I’ll be talking about my Internet equivalent of “comfort food”.  For those of you not familiar with the term comfort food, that’s what you eat when you need something familiar, something that will make you feel good, something comforting.  Traditional comfort foods include macaroni and cheese, fried chicken, and other home-spun delights.  (For the record, tossing back a half dozen Krispy Kreme donuts or a pint of Ben & Jerry’s Chunky Monkey is not indulging in comfort food.  That’s binge eating.)

For a website that always seems comfortable, I trot over to www.stockcharts.com.  Their no cost content is first rate.  Plus, their premium, for-fee content is really useful as well.

First – the no cost stuff.  Stockcharts’ basic charting package is very nice.  If I need a quick chart and don’t have one of my trading platforms up and running, this is the place I go.  Their charts are clean and have plenty of flexibility.  And to be honest, they’re used by lots of analysts out there who want to throw a good looking chart into an article.  BUT, I’ll stop the charting discussion here because I’ll be devoting a full article to charting later in this series.  Let’s just say, that the StockChart “Sharp Charts” feature is a good place to start if you need a quick chart, and leave it at that for today.

There are other no-cost features that I like on StockCharts’ site.  Check out the “Chart School” section for an excellent place to get educational material on technical analysis tools.  You get stuff ranging from useful overviews to nice in-depth treatments.  And to top it off, they have articles on any indicator that you can put on one of their charts.

There are two unique features that the StockCharts has in its no-cost category.  The first I use frequently and is called a PerfChart, short for “performance chart”.  This slick little java-based utility will allow you to plot up to ten symbols and compare their percentage change in price in a graphical format for any time frame from one day to four years.  I actually look at it fairly frequently to do things like compare index performance over the last six weeks or check different sectors’ performance relative to each other.  It’s a very handy tool.

The other unique tool is called a Market Carpet.  This is another java-based tool that puts a lot of data into a visual format in a relatively small space.  For example, one of the pre-defined scans lets you look simultaneously at all stocks in the S&P 500 to see which ones are outperforming or underperforming at a glance. The main use for this tool is to digest large amounts of data on one page.  The downside is that there are only seven pre-defined scans and you have to be a paid premium member to develop your own custom scans.

Next week I’ll share some other useful StockCharts features and kick off the no-cost online charting tools debate.  Keep sending in your favorite sites to drbarton@iitm.com.  This week, I’d be particularly interested in any sites you use for online charting including stocks, futures and forex.  Until next week…

Great Trading!

D. R.

About D. R. Barton: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena where he is one of the most widely read and followed traders and analysts in the world. 

He is a regularly featured guest analyst on both Report on Business TV,  and WTOP News Radio in Washington, D. C., and has been a guest analyst on Bloomberg Radio.  His articles have appeared on SmartMoney.com and Financial Advisor magazine.

 

Melita’s Inspirational Corner

 

Humbled by Teens

by Melita Hunt

A few months back I was asked to volunteer to be one of the coaches for a teen leadership program, and this past weekend was our first weekend together. Wow – what a powerful event! I cannot adequately describe how honored I am to be involved both in this wonderful project and in the lives of these teens over the next four weeks (and perhaps much longer than that). I live and work in a very adult- oriented world, so I had no idea what to expect around a crowd of teens, but the lessons over the last two+ days have been humbling to say the least. I certainly became the student not the teacher.

It all started when I walked in the room. It is amazing how quickly we as adults go to “judgment” based on appearance. I was noticing the class clown, the teacher’s pet, the misfits, the kids with (bad) attitudes, the lazy ones, the wallflowers (or invisibles), the “too cools,” the jocks and the Barbies. But this lasted for only a short moment because my job was to be neutral and I knew that these were just the masks these kids have learned to wear to protect themselves, to be noticed, to fit in, to feel loved or because their parents have molded them that way and they think it is who they have to be to please them.  Many adults wear the same masks, if not many more.  

There were close to 50 teenagers in the room including a group of teen staff (who had already done the trainings) who gave up their weekend to be there voluntarily, simply because they want to make a difference and share their own experiences with other teens. Great kids and what powerful examples!

The age range is 13 to 18 and the socio-economic groups range from poor (attending through scholarship) to very wealthy, and yet all of these kids are exactly the same regardless of “stature” and within 24 hours they had all genuinely become best friends, hugging one another, dancing, helping and encouraging one another. It’s truly beautiful to see. 

With a well structured and very powerful curriculum, the teens are led to some dark depths before they are re-energized and get to see and feel how magnificent and important they really are. The shy become social and the social become connected and accepting. 

The main purpose of the weekend is to let them be heard, to voice their opinions and say the things that they aren’t able to verbalize in other environments. They soon know that they are in a safe and loving place where they can be their true authentic selves – and it doesn’t take long for that to show up in the room.

Nor does it take long before they are sharing profound, sometimes horrifying or shocking secrets and realizing that they are not alone. Realizing, that regardless of what they look like or where they come from, there are many other teens going through what they’re going through.

One of the most powerful things that hit me was the realization that adults spend 10, 20, 30+ years in therapy or depression or self-work to overcome many of the things that these kids are experiencing RIGHT NOW. This is the age that the loneliness, the divorces, the hurt, suicide, fear, the uncertainty, the abuse is being experienced, while for many of us it is just a memory that haunts us and needs to be dealt with, for many of these kids it’s a reality, it’s happening. It is their PRESENT MOMENT and it is very humbling and sometimes heart breaking to hear.

Many of the teens in the world are hurting, and they just need to be told that they are loved no matter what. Even if they don’t get all A’s…

As I coach them over the next few weeks, it is going to be filled with love, positive feedback and encouragement. I have spoken to many of them today and they’re already texting me telling me about their homework plans, and the shy ones are taking the initiative to make new friends. My experience is that most kids really do want to do well.

Therefore, I would like to ask that if you experience a teen this week, whether they are your own or someone else’s, please take a moment to stop and check in with yourself, see if you are looking at their masks and judging them. Then choose to look at them in a totally new way, regardless of what they are “doing.” See them through loving, caring, compassionate eyes and perhaps you’ll feel the urge to give them the hug, the compliment, the praise, the acceptance or the smile that you didn’t get when you were a teen.

And for the cynical people who are thinking: “easy for you to say - you don’t live with them.”  Well you’re right about that, but I was a teen once and I wish I had had the opportunity to go through a program such as this.

So, I still encourage you to give it a go, especially when the going gets tough.

They really are worth the effort…

You can contact Melita at mel@iitm.com

Join in the discussions on our blog and forum

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"Adolescence is a period of rapid changes. Between the ages of 12 and 17, for example, a parent ages as much as 20 years." ~Author Unknown

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