January 2021 System Quality Number® Report The SQN® Report by, Van K. Tharp

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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.

Keep in mind that the Market SQN scores for the 100 and 200 day periods are both bullish, whereas the 50 and 25 day periods are now neutral. In the hot areas, we see strength in everything.

Look at the world market model table below. It’s now mostly totally green. In Asia, only Malaysia is yellow. In the Americas, everything is bullish except for Brazil and the Dow 30 which are neutral. In Europe, only Greece, Germany, Poland, Russia and Switzerland are neutral. And in Africa, only Egypt is yellow.

The most important ETF in the model is UUP – the US Dollar ETF – which remains in strong bear mode. The USD Index is down from a high of 103 last March to about 90 now. That’s a pretty big drop. This month, UUP is the 12th worst performing ETF that we track. Gold has not become the hedge people thought it might be and the precious metal that usually leads the pack during a time of chaos is now bearish. If you measure your wealth in US Dollars, then we’d suggest that you consider protecting your portfolio with cryptos.

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In the US market sectors, there are only two bear sectors, consumer staples, and volatility. Everything else is either neutral or bullish. The strongest sectors are biotech, retail (mostly online retail), semiconductors, 5G, biotech and genome, media, networking, marijuana, and robots and AI. The performance of broker-dealers might be a good measure of the long-term health of the market. IAI is at 1.47 – close to strong bull.

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

There are two bear sectors in commodities – gold, and natural gas. Silver and base metals are neutral. But oil has moved up to bullish territory.

Real estate ETFs are bullish but we are no longer getting data for two of them, so we will either have to find alternative ETFs or modify this section. 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, inflation-protected bonds and junk bonds are bullish, corporate bonds are neutral but everything else is bearish. 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%? Some of the strongest performers in the model currently are Muni bonds so is this where conservative big money now goes for safety? So does that mean that big cities like New York, Chicago, Los Angeles, and Miami have debt instruments that are safer than the US Government? No, it just means that conservative funds really have nowhere to go (most won’t consider BTC).

GBTC – the fund for BTC is not on the top 15 list this month but it is high in the database ranking at 2.12. Notice that gold is bearish and silver is neutral. That seems to indicate that some institutional investors are clearly starting to prefer BTC to gold as a hedge against the collapse of the US Dollar.

The top 15 ETFs all have Market SQN ® scores above 2.39 and several are over 3.0. The hot areas on the top 15 list are again clean energy, municipal bonds, robotics and AI, and small caps. Soybeans also seem to be in that group.

On the bottom 15 list, everything is strong bear. Most are fixed income but the US Dollar and natural gas made the list as well.

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 highlighted the highest values for each column since we started this report in 2015.

The overall picture is similar to last month. Last month 75.5% of our database was bullish, and it’s now 69.6%. Most of the change isn’t in the bearish category but in the neutral category.

Our GBTC offer back in the summer was hugely successful for the participants. They benefited from the move in GBTC which then greatly reduced the amount they owed for their next tuition payment. Now, we are making a new crypto-based offer that involves the best performing cryptos available to US citizens – which are mostly DeFi coins. Read more HERE.

Until early March, 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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