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. However, all figures are relative to the US Dollar. The US dollar bullish ETF (UPP) is the only bullish currency at 0.77. And it makes everything look more bearish. Notice the amount of red and brown in the table indicating weak markets. The table below, in fact, only has 23 green cells.
Let’s start from the left of the table below in the Asia Pacific region. Asia was looking weak last month and now everything is brown or red except for India and Thailand which are bullish, while only Japan, Malaysia and Taiwan are neutral. I have no idea why India is so strong. In the meantime, China, Hong Kong, and South Korea are all strong bear.
In the US, the NASDAQ and SPY are light green. DIA, IIJ, MDY, IJK, IJS, IWM, IJT are all neutral. Only IWC is bearish. That pattern continues into the various sectors as discussed below.
The other America’s markets are weak. Canada and Mexico are neutral while everything else is bearish. Brazil and Latin America are now strong bear.
Europe is entirely neutral or bearish. Austria, France, Italy, Switzerland, and the UK are neutral. While the rest are bearish. The Euro is still the weakest currency, so that doesn’t bode well for Europe over the next few months.
When we look at the fiat currencies, we now have one bullish currency (the US Dollar). Bitcoin, which is not a fiat currency, was bullish last month and is now bearish. The Swiss Franc and the Japanese Yen are neutral, while everything else is bearish or strong bear. The Japanese Yen took the place of the Euro as the worst at -1.05.
In the most talked about sectors, only 5G is bullish. Robots and AI are neutral. While Hemp ETF, online Retail and Marijuana are strong bear. I guess no one sees marijuana being legalized in the US anytime soon. This is just rumors. MJ is by far the worst sector. Mexico and Canada have both legalized marijuana, but the US will probably not do so while infrastructure bills are being fought over in congress. I’m surprised that online retail is weak, but billionaires are now willing to sell their darling (i.e., Amazon) and invest in the metaverse, so that could be the reason.
Now let’s look at the individual market sectors. We have three bearish sectors: Biotech, Retail and AI-powered EQ. There are thirteen bullish sectors with Consumer Staples, Consumer Discretionary, Homebuilders, REIT, Semiconductor and Technology with SQN scores above 1. The 15 remaining are all neutral.
Commodities, Real Estate, Debt, and the Top and Bottom Lists
Commodities are almost all neutral. Global water and gold are bullish, natural gas is bearish and steel is strong bear. Everything else is neutral, which is a change since last month where there was a lot more bearish and strong bear.
Two of our real estate sectors are no longer listed and the other two are both bearish.
Long term bonds are neutral, TIPS are bullish, while the shorter-term bonds are strong bear, generally the shorter the term the more bearish they are.
Among the strongest ETFs this month are at least three related to Real Estate. Only one sector (MBG) is strong bull. The rest have SQN® 100 scores between 1.23 and 2.04.
The weakest ETFs, in contrast, are all strong bear with SQN® 100 scores ranging from minus 1.07 to minus 1.83. The weak sectors are quite diverse ranging from online retail, to genome, to high yield bonds and Pakistan.
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 have been keeping monthly data since January 15, but I decided to only do quarterly data except for the last two years. However, if a row has a record month, then I retained it. You can look at the Aug 2021 issue and get all the months if you wish.
The summary numbers tend to suggest Neutral with 42.2% being Neutral and 39.6% being bear.
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.