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 an index-based 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 table below is now mostly green in the Americas. The US and Canada are green but Central and South American countries have moved to neutral. Everything in Europe is bullish except Poland and Spain which are both neutral. In Asia, only Taiwan, Australia, Hong Kong, and Singapore are green while everything else is neutral except Malaysia which is bearish.
The most important ETF in the model is the US Dollar (UUP) – which has now turned neutral. The USD Index is down from a high of 103 in March 2020 to about 93 now. That’s a pretty big drop but since UUP is no longer one of the worst-performing ETFs we track, the overall big picture has moved more neutral. It might have nothing to do with the overall market and everything to do with the fact that we measure everything in terms of the US Dollar. And now gold, usually a hedge for times like these, is the only commodity with a bearish score. Nevertheless, if you measure your wealth in US Dollars, then we’d suggest that you protect your portfolio with cryptos.
While the crypto market will be discussed in my Crypto Update in the middle of the month, almost everything is hot. And there are a number of cryptos that are up over 1,000% in the first four months of 2021. We opened up the Van Tharp Institute crypto account in February and the graph shows its performance over 2 months. We had a scary drawdown, normal for cryptos, but have almost recovered. We have invested a total of $850,000 and are up 54% in two months.
In the US market sectors, there is still only one bear sector, volatility. And now there are eight neutral sectors, up from four last month – biotech, pharmaceutical, and software have been joined by consumer staples, oil and gas equipment, biotech, and genome, and 5G. Utilities are now bullish again as is everything else. The strongest sectors are broker-dealers (the market is booming), food and beverage, and financial sectors. The performance of broker-dealers might be a good measure of the long-term health of the market. That sector is now just below the top 15 ETF list with a Market SQN score of 2.06 – up from an already strong 1.47 three months ago.
What’s really interesting is that some of the worst-hit industries by the pandemic are now quite strong. Big recoveries are quite obvious in oil and gas, Dow transports, food and beverage, retail (all, not just online), and REITs. So big money is already anticipating a recovery from the pandemic and has moved into those sectors. In the market update, I said there would soon be a nice opportunity in those sectors, but I was wrong. It’s already taken off.
The only real weaknesses on the table are in the currencies which is probably due to the central bank and government spending around the world to try and protect economies from COVID-19. Here, the Japanese Yen is the worst, followed by the Swiss Franc and the Euro. The Indian Rupee, which was the worst, is no longer getting data. Several currencies, however, are relatively strong and Bitcoin dominates that group.
Commodities, Real Estate, Debt, and the Top and Bottom Lists
There’s one bearish sector in commodities – gold. Some inflation hedge. Silver and natural gas are neutral but everything else is bullish. Corn, agriculture, and oil are now among the strongest sectors that we follow.
Real estate ETFs are bullish, but we are again missing data for half our real estate ETFs. My thought would be that real estate would be generally down, but real estate is a hedge against the US dollar crashing – and interest rates are cheap.
In bonds, the junk bond ETF is bullish. Inflation-protected bonds and short-term bonds are neutral and everything over three years is strong bear. Why would you want to be in debt instruments paying less than 2-3% when the value of the US Dollar has gone down 10%? You can actually deposit US Dollar based stablecoins in some crypto wallets (where they need money for expansion) and get 5-10% interest in them.
Last month I mentioned that muni bonds were dominant among the strongest ETFs but now nothing related to them exists in the top 15. That said, big money is clearly moving into what they consider value – sectors that have been depressed by the pandemic.
The top 15 areas all have Market SQN® scores above 2.12. Last month they were all above 2.6. As I mentioned, there is a strong move into commodities right now and that means big inflation.
BTC is at 1.48 and has dropped from strong bull to bullish, however, Grayscale didn’t manage this fund very well. By January 2021, accredited investors who had deposited BTC in the fund could get out and they had such big profits that they didn’t care about the premium. As a result, despite a strong crypto market, GBTC is selling at a very large discount to BTC – about minus 20%. We will replace GBTC with OBTC as soon as we have enough data. Still, GBTC’s strong relative performance compared to bearish gold seems to indicate that institutional investors are starting to prefer BTC as a better hedge against inflation and the weakening US Dollar.
On the bottom 15 list, everything is strong bear and most involve fixed income and the Japanese Yen. That remains the same from last month.
Summary
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 –
I highlighted the most extreme values for each column since we started this report in 2015. You will notice this month has the highest strong bull percentage since 2015. The overall picture of the database was stronger last month, but as I said that’s because the US dollar now shows up as neutral.
Our GBTC offer last summer was a huge success for the Super Traders who participated. Many of them had their second phase of the program fully paid for through the promotion. We just finished another similar offer this time with mostly DeFi cryptos. So far, we are up 54% in two months. That offer has closed but we are accepting applications for the ST Foundation program for anyone who wants to start in July or later this year
Until the May SQN report, this is Van Tharp.
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.