January 2020 System Quality Number® Report by Van K. Tharp, PhD

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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 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.

In January, equity markets made a huge move upward and are now mostly green after being very neutral last year. The US Dollar has moved from bullish to almost zero. This month there no dark green currencies, but the pound (after Brexit?), the Rupee, the Swiss Franc, and the Yuan (with coronavirus?) are all bullish. The Euro and the US Dollar are neutral, but all the other significant currencies are bearish.

We’ve added a section in the bottom left corner of the chart of potential hot areas. Two hot areas are worth considering based upon their Market SQN score: Robotics and AI. 5G is neutral right now, while Marijuana and BTC are strong bear and bear respectively. This suggests that some of my favorite systems (a course included for both Super Traders & Super Trader Foundation students) could be applied to Robotics and to AI stocks.

For example, look at NVDA (which is well-positioned for both AI and for cryptos). GOOG, however, might be one of the most interesting plays since they now have a Quantum computer. Additionally, Google Home is the best artificial intelligence program in my opinion that everyone has potential access to (of the four main AI services, the others being – ALEXA, SIRI, and CORTANA). Newsletters have a strong influence in these areas based on marketing fear and greed so if you are reading them, be careful here.

Some of you might be wondering why all of our crypto systems are fully invested right now when the Market SQN score for GBTC is bearish. We will discuss this topic extensively on day three (Feb. 20th) of our live-streamed workshop, Trading Genius II: Systems Thinking. There’s plenty of time to sign up for that workshop which will still give you three weeks to watch the recordings (online) of the first two days of that workshop. You can then either attend in person the February 20th session or watch it at home via video streaming. Additionally, if you sign up for the two workshop package deal in February (Blueprint and Systems Development), then we will give you Trading Genius: Systems Thinking for free.

Asian equities changed in January from mostly green to mostly sideways with Thailand being very bearish. Hong Kong and Malaysia are both bearish now and I’d expect China to head in that direction with the combination of the coronavirus and the travel/trade embargo working against them. While Japan and Taiwan are bullish, most countries in the region are feeling some impact already of the coronavirus outbreak.

In the US, all of the equity segments run from strong bull to neutral. All of the large-cap index ETFs are strong bull. In the Americas outside of the US, it’s pretty much the same story with the exception of Chile in strong bear mode.

In Europe, I would expect to see a big impact from Brexit this year. The UK could easily lose Scotland by the end of 2020 (most of the UK’s nuclear weapons are in Scotland) and perhaps Ireland too. Surprisingly, however, the UK is green right now. Also green are Russia, Germany, Sweden, and Switzerland. The only bearish country in Europe is Poland.

In Africa, Egypt and South Africa are both bearish, but it’s surprising that Nigeria is bullish after getting slapped in the face on immigration to the US by Donald Trump.

I’m no longer talking about what every sector is 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 three red areas this month: Volatility, Oil and Gas Exploration, and Marijuana. We just added MJ because it’s being touted as a hot area. The strongest sectors are Health Care, Pharmaceuticals, Semiconductors, Technology, and Utilities. Artificial Intelligence is also close to strong bull.

Commodities, Real Estate, Debt, and the Top and Bottom Lists

Only one commodity is dark green – global water. Global water is in a huge uptrend as you can see in this long term chart of CGW below –

Three commodities are light green – gold, timber and agriculture. Silver and steel are neutral while base metals, livestock, oil, and global agribusiness are all bearish. Natural gas and coal have moved from bearish to very bearish. Coal, as one of the worst fuels for the environment, is almost dead and certainly in a long term downtrend as the following KOL chart indicates –

 

Real estate is very good in Europe but almost bearish in China. If you look at the US, it’s bullish.

Interest rate products that are now bullish include short term bonds, corporate bonds, and high yield bonds. Short term bonds are actually very bullish right now.

In the Top 15 list for January, everything is strong bull with the weakest Market SQN score being 2.12 — the same as last month. Real estate and variable rate bonds issues seem to dominate the top 15. Palladium and Global Utilities also crack the top 15.

As for the bottom 15, they are all red with the strongest (least weak) being MLPA – a natural gas fund. Coal, natural gas, and marijuana are all in the bottom 15. Chile, Egypt, and the Philippines all have entered the bottom 15.

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 shift toward bullishness in December though that retreated a little in January.

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.

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