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.
We’ve added a section with a few categories I see promoted all the time as the hot new areas. This month, all of them are either bear or neutral. The strongest symbol is artificial intelligence and robots but AI isn’t that strong so the strength must be in robots.
In January and for much of February, the equity markets made a huge move upward and became mostly green after being neutral last year. Then COVID-19 hit – and today the chart looks as brown/red as I have ever seen it. And that’s despite the runup in the US Markets for the past month.
The entire equities and currencies table below has two greens. Volatility is high and that makes sense. The Swedish Krona is strong also, however, that doesn’t match the data we just saw on SEK. This difference might have to do with a quirk in the price data.
The US Dollar moved from bullish to slightly bearish. Compared to other countries, the US Dollar doesn’t look so bad in spite of the huge bailout packages and Fed buying programs.
This month, only the Swedish Krona is green, however, the Swedish Krona / USD chart doesn’t seem like it would have an SQN over 2.0. In addition, we are missing data on the Brazilian Real. The Yen, Swiss Franc, US Dollar and BTC are all neutral. The Indian Rupee is strongly bearish and a lot of other currencies are bearish too including 1) the British Pound, 2) the Canadian Dollar; and 3) Yuan.
US equity segments have taken a decided turn to the downside. EVERYTHING is bearish or neutral so it’s not much different than last month. In addition, all of the countries in the Americas are also red or brown.
Asia is totally brown with two neutral countries – China and Taiwan – but that doesn’t make any sense to me. Should we assume that the Chinese government is supporting their markets just like the Fed is supporting our markets? The worst country in Asia is still Singapore which is again surprising as it has had the virus pretty much under control. Singapore depends upon exports, however, and if it cannot export due to COVID-19 related restrictions, then you can understand why it might be red. Hong Kong, with the Chinese crackdown, is not neutral like China is.
It’s the same story in Europe – everything is brown, except for one standout – the Netherlands – which is just into neutral territory. In Africa, everything is brown except for Nigeria which is red.
In the US equities sectors, everything is neutral or bearish with the exception of volatility which is still bullish. The worst sector is still Energy.
Commodities, Real Estate, Debt, and the Top and Bottom Lists
Commodities are mostly brown or red with exceptions of Gold (bullish) and Silver (Neutral).
US and European real estate symbols are strong bear with China real estate being neutral.
Interest rate funds are green overall with most of the short-term funds being strong bull, however, corporate bonds and TIPS bonds are neutral. Junk bonds are weak.
The top 15 list has 10 strong bull funds and the rest are just bull. The top ones are mostly interest rate ETFs and volatility related. The Swedish Krona is now in the top 10, but again, that’s probably a data issue.
On the downside, 1 of the 15 funds have Market SQN scores worse than minus 2.0. (as opposed to 13 of them three months ago). The bottom list includes a lot of energy and commodity sectors. Thus, the market is not expecting the huge stimulus money to create inflation – but rather to help us from going into a deflationary depression.
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 –
The overall picture is slightly less bearish this month compared to April or May but it’s still overwhelmingly bearish – 68.6% of the database is Bear or Strong Bear right now (vs 78.3% two months ago).
Until August, 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.