Home Workshops Products Contact Us

View this newsletter on-line, or read back issues

   

Tharp's Thoughts Weekly Newsletter (View On-Line)

March 26, 2009 — Issue #416
  
Workshops

Van Tharp Invites You Over for Dinner at His Place

Article

Market Update for March by Van K. Tharp Ph.D.

Sale

Peak Performance Home Study Course

Trading Tip

More Top Notch Internet Resources—Stock Screening by D.R. Barton, Jr.

Mailbag

Managing Position Sizing for Various Time Frames

Blueprint for Trading Success

Attendees Are Invited to Dinner at Dr. Tharp's Home

(See photos from previous dinners)

 

April 24-26  Blueprint for Trading Success

This course is a complete structured program that will launch you to a more advanced skill level in your trading.  You’ll learn strategic, focused steps that will serve you throughout your entire trading career.

April 26  Dinner at Dr. Tharp's
April 28-30  Peak Performance 101

You’ll leave this investment "Boot Camp" knowing, for the first time in your life, why some people consistently make profits over and over again, while other investors and traders are erratic and unsuccessful.

Learn More...

"Well structured and put together expertly. Van is clearly highly experienced and knowledgeable and presents his material with enthusiasm. The fact that he speaks from experience makes the learning experience that much richer." —Michael Tan, Blueprint Workshop, Australia.

"The best workshop I have attended, trading or otherwise. Would encourage anyone to do this course who wants to really get in touch with who they are and why they act the way they do. And more importantly how to change themselves to achieve the goals they want." —Jonathan Gould, Peak 101 Workshop, Australia  More Comments...

 

Feature

Tharp’s Thoughts

Market Update for the Week ending March 20th  2009

Market Condition: Volatile Bear

by
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. If my beliefs and your beliefs are not the same, then you may not find them useful. I find the market update information useful for my trading, so I do the work each month and I'm 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.  These updates cover 1) the market type (first mentioned in the April 30 edition of Tharp’s Thoughts), 2) the five week status on each of the major U.S. stock market indices, 3) our four star inflation-deflation model plus John Williams’ statistics, 4) tracking the dollar, and 5) the five strongest and weakest areas of the overall market.

Part I:  Market Commentary

I won’t be writing an update at the end of the month because I’ll be on vacation and probably won’t have easy access to email.  But I didn’t want to completely miss a month, so I’m making this update effective March 20th, 2009.  The next update will be through April.

I get a lot of emails about the market.  Most of them are written by people who sell investment advice (rather than education), which means you pay and they tell you what to do.  It also means that if you are paying them, you’ll probably be unhappy if they are not giving you advice that makes you money.  And when there isn’t too much to do that becomes a very difficult job.

Interestingly enough, a lot of those emails are now saying "Buy! We’re due for a rally in stocks."  However, that isn’t what our indicators are saying.  The old 1-2-3 model is still in red light mode.  And our market type model is still in volatile bear mode.  You might make money with VERY short term trading, but this certainly isn’t the time for a long-term investment on the long side in the stock market.  Although a few sectors (see below), might be ready for a new investment.

Part II: The Current Stock Market Type Is Volatile Bear

The following shows the market type, based upon 13 week rolling windows for the last six months.  Notice that it has been a steady volatile bear.  There is even a limitation to our model in that market changes that occurred 14 weeks ago could affect what’s happening now.  For example, during the week of October 6th through October 10th, the market dropped 18%.  Since the absolute value of the 13 week changes over 50 years is about 5.58%, that week alone is enough to put us in a bear market and keep us there.  However, the market moved to volatile sideways one week before the change was due and dropping that 18% change had no effect. 

Market Condition

Date

Volatile Bear

03/20/09

Volatile Bear

03/13/09

Volatile Bear

03/06/09

Volatile Bear

02/27/09

Volatile Bear

02/21/09

Volatile Sideways

02/13/09

Volatile Sideways

02/06/09

Volatile Bear

01/30/09

Volatile Bear

01/24/09

Volatile Sideways

01/16/09

Volatile Sideways

01/09/09

Volatile Sideways

01/02/09

Volatile Bear

12/26/08

Volatile Bear

12/19/08

Volatile Bear

12/12/08

Volatile Bear

12/05/08

Volatile Bear

11/28/08

Volatile Bear

11/21/08

Volatile Bear

11/14/08

Volatile Bear

11/07/08

Volatile Bear

10/31/08

Volatile Bear

10/24/08

Volatile Bear

10/17/08

Volatile Bear

10/10/08

Volatile Bear

10/03/08

Be clear that it’s probably very dangerous to make a long term commitment on the long side to the U.S. stock market in this climate.  I would want to see at least two to three weeks of bull market (not volatile sideways) to make that commitment.  In the table above, notice how often we are in a bear market.

So let’s look at what’s happening in the three major U.S. indices.

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

 

1,211.12

 

1,621.12 

 

Close 05

10,717.50

-0.60%

1,248.29

3.07%

1,645.20 

1.50%

Close 06

12,463.15

16.29%

1,418.30

13.62%

1,756.90

6.79%

Close 07

13,264.82

6.43%

1,468.36

3.53%

2,084.93

18.67%

Close 08

8776.39

-33.84%

903.25

-38.49%

1211.65

-41.89%

23-Feb-09

7,114.78

-18.93%

743.33

-17.70%

1,128.97 

-6.82%

02-Mar-09

6,763.29

-4.94%

700.82

-5.72%

1,076.67 

-4.63%

09-Mar-09

6,547.05

-3.20%

676.53

-3.47%

1,043.87 

-3.05%

16-Mar-09

7,216.97

10.23%

753.89

11.43%

1,145.45 

9.73%

20-Mar-09

7,278.38

0.85%

768.54

1.94%

1,187.18 

3.64%

Year to Date

7,278.38

-17.07%

768.54

-14.91%

1,187.18

-2.02%

Year to date the U.S. markets are not down as much as they were in the last update, so perhaps there is some hope for a recovery this year.

Part III:  The Strongest and Weakest Market Components

I have a new model in which we track the relative strength of the various ETFs representing the economy of the entire world.  I will be publishing this once a month.  Ken Long, who developed the algorithm we use, publishes a similar report every weekend at www.TortoiseCapital.com. If you’d like more information, then I’d suggest you attend our ETF workshop, which is held several times each year. Ken explains how these numbers are derived in this workshop.

The areas in green are stronger (the total rating is at least one standard deviation above the mean); those in yellow are the next strongest (above the mean).  Those below the mean are in brown; and those more than one standard deviation below the mean are in red.  I’ve also taken all of the double leveraged funds out of my database, which means that the top and bottom funds are not devoted entirely to those groups.

By the way, if you didn’t read my article on GLD last month, then please take a look at it.  ETFs have some additional risks that the underlying instrument doesn’t have, just like mutual funds have risks that the stocks they own do not have.  Namely, the instrument you are trading could fail (and cost you extra money), while the underlying trading instrument (i.e., gold) could be doing fine.  In fact, I find that each month some company is closing down a set of ETFs, and I have to eliminate them from the ETF database that generates these charts.  I think funds are being eliminated now faster than they are added.  And what happens if an ETF that you own is taken off the market?

Click here to view larger chart

This world view continues to look better with a number of areas (other than the U.S.) starting to turn green.  However, I’ve taken out the double leveraged funds, and right now the only reading above 60 is Russia (and that’s just because of recent strength, not long term strength).  South Korea is at 56 and South Africa is at 57. 

The next part of the chart shows commodities, real estate, and interest rate products, along with the top and bottom 15 ETFs.  As I said, I’ve taken out the double leveraged funds so that we have a better example of the overall world picture.

The Strongest Areas:

1)      Russia
2)      Copper (JJC)
3)      Gold Mining Stocks  (GDX)
4)      Oil (DBO, USO, and OIL)
5)      South Africa (EZA)
6)      South Korea (EWY)
7)      Asia (less Japan)
8)      Broadband

The Weakest Areas:

1)      REITs  (RWR)
2)      Realty Majors (ICF)
3)      Vanguard REITS (VNQ)
4)      Real Estate 50 (FTY)
5)      US Real Estate (IYR)

The overall picture of what is really weak is clear. The bottom 8 all have to do with real estate until we get to 9 and 10, which are related to health care.

Part IV: Our Four Star Inflation-Deflation Model

Once again, we are in credit contraction mode, so it is not the inflationary bear market I once thought we were going to get six or seven years ago.  But I suspect that we’ll be in one by the end of 2009.  Gold is certainly suggesting that.

Date  CRB/CCI  XLB  Gold  XLF 
05-Dec 347.89 30.28 513 31.67
06-Dec 394.89 34.84 635.5 36.74
07-Dec 476.08 41.7 833.3 28.9
08-Dec 252.06 22.74 865 12.52
08-Jun 595.98 41.64 930.25 29.12
08-Jul 548.86 39.75 918 21.63
08-Aug 516.47 40.38 833 21.42
08-Sep 452.42 33.4 884.5 19.89
08-Oct 369.56 25.92 730.75 15.53
08-Nov 361.74 23.05 814.5 12.66
08-Dec 352.06 22.74 865 12.52
09-Jan 364.5 21.06 919.5 9.24
09-Feb 352.45 19.22 952 7.56
Mar 20 09 372.87 21.18 954 8.1

We’ll now look at the two-month and six-month changes during the last six months to see what our readings have been.  The CRB is now reaching levels not seen since 2005.

Date CRB2 CRB6 XLB2 XLB6 Gold2 Gold6 XLF2 XLF6 Total Score
  Higher Lower Higher Lower Higher Higher Lower  Lower  
March   -1/2   -1/2   +1   +1 +1

Last month’s reading was +1/2, so the model is moving into inflation again. 

Gold is continuing to show some recovery, with Gold stocks and gold coins showing even more strength.  People all over the world are paying a pretty strong premium over spot gold for common (not collectors items) gold coins.  Collector’s items are even stronger.

Part V: Tracking the Dollar

The dollar is continuing its uptrend because of deleveraging.

Month

Dollar Index

Dec 00

104.65

Dec 01

109.51

Dec 02

101.48

Dec 03

86.21

Dec 04

80.10

Dec 05

85.65

Dec 06

80.89

Dec 07

73.69

Dec 08

80.69

 

 

Jul 08

70.91

Aug 08

74.09

Sep 08

75.51

Oct 08

80.39

Nov 08

82.74

Dec 08

80.69

Jan 09

81.01

Feb 09

83.11

Mar 20

85.44

The dollar has been in an uptrend since July with only one minor down month (in December).  Don’t expect this to continue for much longer (at most through the end of the year).

Incidentally, gold’s performance is excellent when you measure it in most other currencies beside dollars.  

General Comments

Crisis always implies opportunity.  And if you watch, there is plenty of it.  Right now, unless you are a very nimble trader, I’d recommend that you stand aside in cash.  Perhaps you might want to own some physical gold, such as coins, but pay no more than 3% over the spot price of gold for coins.  And wait patiently for the tremendous opportunities that will occur. 

There will t be another update at the end of April.  Until the next 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 Freedom 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. 

Sale

Peak Performance Home Study

 

This spring, Dr. Tharp will be releasing an updated edition of his masterpiece, the Peak Performance Home Study Course. But this second edition will not be available for a couple of months.

Trading Tip

More Top Notch Internet Resources—Stock Screening

by
D.R. Barton, Jr.

Two years ago, I did a 12 part series on low and no-cost internet resources. The series was very well received, and I really enjoyed sharing my favorite sites and finding some new quite useful ones.

Because the task takes a bit more time, I never got around to doing a section on stock screeners; but I think we’re ready to dig into those sites!

First of all, if you’ve used any low or no-cost screeners for fundamental screening (there are loads of them out there) or especially for technical/indicator based screening, please send me the web address and what you liked or didn’t like about the site.  You can send comments to drbarton “at” iitm.com (please use the tradition “at” symbol for the e-mail address—I have to do this to keep the spambots from overwhelming me!).

As a prelude to the series, I’ll let you know that we’ll be looking at some good fundamental screeners including MSN, Yahoo and other big names.  There are also some good technical screeners out there ranging from limited flexibility to ultimately customizable.

For today, I’ve taken a cursory look at a site called “stockfetcher.”  It has some definite promise.  As a no-cost site, it a nice variety of pre-written stock screens.  It only returns a limited number of stocks per screen, using this as a teaser for a subscribing.  It has a fairly low cost of only $9 per month or $25 per quarter and with that you’ll be able to write your own screens and use their library of prewritten screens as well.

The good news is that there are some other screeners out there that do some very interesting and comprehensive fundamental and technical screens on a no-cost basis.  And we’ll start taking a look at them next week.

A  Tribute to My Amazing Mom

The following is a very personal account about my Mom.

Thanks once again for all of you who knew about my Mom’s health struggles and sent your kind sentiments, thoughts and prayers. And thanks for allowing me the excellent therapy of writing my experience to keep my dear friends and colleagues informed.

Just before church on Sunday morning, my Dad called to report extreme circulatory difficulties that Mom was experiencing. We loaded up the car with kids and dog, and headed south, getting there at 9 p.m.  Mom was tired but caught up with my son Josh's golf and straight "A's" and daughter Meg's second straight perfect score on her PSAT reading section.  Mom told them how proud she is of them.  We left to go home and get some sleep. 30 minutes later, my amazing Mom, now complete after having connected with all of her family, passed quietly on to be with her Lord whom she loves so much and served so well. 

Mom had the soul and spirit of a servant.  She will be remembered as a person of great service to the community and as one who always put others first.   The love she shared with her family and friends and her contribution to numerous ministries and organizations will continue to be felt for generations. She was a beacon to many through her service as an active member of First Christian Church and a founding member of Radford Clothing Bank.  She was also a servant leader in her work with the Radford Women’s Resource Center, and she gave her support, time and service to countless individuals and organizations too numerous to name.

I'm at a place of real peace, knowing exactly where she is and getting to share such a wonderful time with her just minutes before she moved on to a much better place.  Despite physical discomfort, Mom was full of joy through the whole ordeal; one of the last things she said to me and my kids was "Elvis has left the building."  We laughed until our sides hurt.  I hope that my transition has half as much grace and style. 

Great Trading,

D. R.

About D.R. Barton, Jr.:  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.  He is a regularly featured guest on both Report on Business TV, and WTOP News Radio in Washington, D.C., and has been a guest on Bloomberg Radio. His articles have appeared on SmartMoney.com and Financial Advisor magazine. You may contact D.R. at  “drbarton” at “iitm.com”.  

Mailbag

Managing Position Sizing for Various Time Frames

by
Van K. Tharp, Ph.D.

Reader Question: A colleague recommended Trade Your Way to Financial Freedom. I checked it out of the library, but was so taken with the tactical/practical advice that I purchased the book. It’s an excellent what to do and how to do it manual.

What is the scope of one’s asset base that one should include in the position sizing and risk management analysis? Presumably, folks have longer term investments that are the bulk of the monies they will need in retirement, medium term investments that one can take some medium level of risk, and shorter term (maybe even day trades) investments (many a small percent of one’s overall asset base) that one will subject to greater risk.

Should all these components be included in the position sizing and risk management analysis, or should we have different strategies for managing these different components of one’s asset base?

Van: Each account should be subject to some form of position sizing depending upon the objectives of the account. But don’t lump all the funds together. Treat the equity for each account separately.

Feedback

Feedback to Dr. Tharp and the Van Tharp Institute

Everything that we do here at the Van Tharp Institute is to help you improve as a trader and investor. Therefore, we love to get your feedback, both positive and negative!

Feel free to click below to leave us any comments so that we can serve you better.

Click Here for Feedback Form

 

Do Not Reply to this email using the reply button as the email address is not monitored, your email will not be seen. Please click this link to contact us: suggestions@iitm.com

The Van Tharp Institute does not support spamming in any way, shape or form. This is a subscription based newsletter.

If you no longer wish to subscribe, Unsubscribe Here

To change your e-mail Address, click here

Or, paste this address in your browser: http://www.iitm.com/privacy_policy.htm

 

The Van Tharp Institute
102-A Commonwealth Court, Cary, NC 27511 USA
800-385-4486 * 919-466-0043 *  Fax 919-466-0408

Back to top

Copyright 2009 the International Institute of Trading Mastery, Inc.

.

.

.

.

.

.

Quote:.

"It's not what you look at that matters, it's what you see." 
Henry David Thoreau 

..

..

.

.

.

.

.

.

Trouble viewing this issue?

  View On-line.

.

.

.

.

.

.

.

..


Buy Now

.

.

.

..

Back to top

.

..

.

.

.

Tharp Concepts Explained...

 

- Psychology of Trading

- System Development

- Risk and R-Multiples

- Position Sizing

- Expectancy

- Business Planning

Learn the concepts...

.

.

.

.

~

~~~~~

.Back to top

~

~

~

.

.

Free Downloads

Handbook for Traders and Investors

 

~

~

.

.

.

.

~~

~

Free Trading Simulation Game

A computerized version of Van's famous "marble game."

It is designed to teach you the important principles of proper position sizing.

Download the 1st three levels of the game for free. Register now.

~

.

.

~

~~~~~

.Back to top

..

.

.

.

~

.

.

Share this newsletter with a friend!

..

.

.

..Back to top

.

.

.

.

.

.

.

.

....

Share this newsletter with a friend!

~.~~~

~