December 2019 System Quality Number® Report By, Van K. Tharp, Ph.D.

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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 essentially the same rating scale that we use for the Market SQN Score in the Market Update. The World Market Model spreadsheet 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.

In December, the equity markets made a huge move upward and are now mostly green after being very neutral for much of the last year. The US Dollar has moved from bullish to almost zero. There is one dark green currency this month, the British Pound (investors suddenly think Brexit will be done soon?) The Aussie Dollar, the Canadian Dollar and the Indian Rupee are all bullish. Three currencies are bearish; the Euro, the Yen, and BTC.

Asian equities have changed from sideways to mostly green. The only country in bear is Thailand. Hong Kong, India, and Malaysia are neutral. Australia, China, and Singapore are bullish, while Japan, South Korea, and Taiwan are very strong bullish.

In the US, equity market segments are now mostly light green with one exception. And in the Americas, Chile and Argentina are both brown (they were red last month). Latin American country markets are both yellow (they were brown last month). Canada, Mexico, and Emerging Markets are all bullish.

In Europe, everything is green except Poland which is neutral. The dark green countries include the Netherlands, Sweden, and the UK. Africa is a mixed bag with South Africa (and Africa overall being bullish) while Egypt is bearish and Nigeria is neutral.

I’m no longer talking about every stock market sector and what they are doing. You can look at the tables and use the guidelines above to tell whether something is Bull, Neutral/Sideways, or Bear but I will point out a few.

There are only two red areas, Volatility and Marijuana. I just added MJ because it’s been touted as a hot area). The strongest areas are Health Care, Semiconductors, Technology, and Artificial Intelligence.

I’m also tracking the hot areas typically mentioned by newsletters. Those are shown in order of strength in the table below.

The bottom line here is: don’t get moved by newsletters into these areas out of fear and greed. BTC and Marijuana are both very deep in bear mode. Strong areas include Robots, AI, and 5G. The best area right now is in Artificial Intelligence (probably the one least talked about).

Commodities

Two commodities are dark green – Global Water and Timber. Three are light green – Commodities (DBC), Oil, and Agriculture. And two are brown – Natural Gas and Coal. All the rest are yellow.

I decided to look at long term trends in some of the commodities, especially Global Water and Timber. Global Water is in a huge uptrend.

Timber is up long term, but not nearly as much. 

In contrast, coal, as one of the worst fuels for the environment, is almost dead and certainly in a long term downtrend. See below.

Real Estate, Debt, and the Top and Bottom Lists

Real Estate has gone from neutral to very strong.

The move to interest rate products is over as they are now all brown or yellow (except for corporate or junk bonds). Long term bonds are all bearish.

In the top 15 for November, we only had one strong bull. For December, they are all strong bull with the weakest having a Market SQN of 2.12. Variable rate bonds are very strong. Taiwan, Palladium, and Timber are in the top 15.

As for the bottom 15, there are 7 reds and 8 browns. The weakest is our new listing for Marijuana. (So do you want to get in at this point?) GBTC is also among the weakest. I like GBTC here except I want to see an up-move at least begin before entering. The rest of the worst include countries like India, Chile, Argentina, Egypt, and even the Japanese Yen.

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 –

Notice that there was a huge change toward bullishness in December.  
 
Until next month, 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.

1 thought on “December 2019 System Quality Number® Report By, Van K. Tharp, Ph.D.”

  1. I am liking $TQQQ and $SPXL a lot. You could have bought them any day over the past 2 years (doesn’t matter what day) held them, and made money. I like to trade those ETF’s because they match the market trend. Which has been up (long side) for a while now.

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