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.
See below for a table that covers the equity markets across the globe. Europe is now mostly green; the Americas are a mix of green and yellow, and Asia country markets are mostly brown and yellow. In the US, the growth sectors are mostly yellow while value is green. Canada is strong bull, while Mexico and Brazil are green. Latin American and Argentina are yellow while Chile is brown.
In Europe, everything is bullish except Spain. And in the east, Singapore is bullish, most areas are neutral, while Japan and Malaysia are bearish and China is strong bear.
The most important ETF in the model is the US Dollar (UUP) – which is still neutral. Since UUP is no longer one of the worst-performing ETFs we track, the big picture for the model has moved more neutral. That might have nothing to do with the market overall and everything to do with the fact that we measure the whole model by the US Dollar. And now gold, usually a hedge for times like these, is the only bearish commodity.
In the US market sectors, there are only four bear sectors: volatility (which is strong bear), biotech, robots, and marijuana. Thirteen sectors are neutral. Bullish sectors include basic materials, consumer supplies, energy, health care, metals and mining, oil and gas equipment, oil and gas exploration, retail, technology, aerospace and defense, food and beverage, and insurance. The strong bull sectors include financial, industrial, REITs, and broker dealers.
The only real weakness on the table is in the currencies which probably arises from government spending as governments around the world try to protect economies from the effects of the COVID-19 pandemic. The Japanese Yen is the worst currency followed by the Swiss Franc and the Euro. The Indian Rupee ETF did not have price data. There are no strong currencies.
BTC has dropped from strong bull to bear. Grayscale didn’t manage their GBTC fund very well. By January 2021, accredited investors who had deposited BTC in the fund could not get out and they had such big profits that they didn’t care about a premium. As a result, GBTC now is selling at a very large discount to BTC – about minus 10%. We will replace GBTC with OBTC in the model as soon as we have enough data. GBTC’s strong relative performance compared to bearish Gold seems to indicate that institutional investors are starting to prefer BTC as a better hedge against inflation and the weakening US Dollar. Although I also understand that about 50% of investors still agree with Buffet that BTC is rat poison squared.
Commodities, Real Estate, Debt, and the Top and Bottom Lists
There is one bear sector in the commodities – gold. An inflation hedge should be stronger than fiat money. Silver, timber, and livestock are neutral. Everything else is bullish. The strongest ETFs are blended commodities, base metals, oil, coal, and steel. Natural gas, global water, agriculture, and global agriculture are all bullish.
Real estate ETFs are bullish but we are again missing data for RE Europe and RE China this month. Real estate is a hedge against the US dollar crashing. In addition, interest rates are still cheap so houses in my area (especially top-end houses) are up about 50% in the last two years.
In bonds, the junk ETF, inflation-protected bonds, and 1–3-year US bonds are neutral. Everything else is bearish. As I’ve said, why would you want to be in debt instruments paying less than 2-3% when the value of the US Dollar has gone down more than 10%? You can actually deposit US Dollar based stablecoins in some crypto wallets (where they need money for expansion) and earn 5-10% interest on them.
The top 15 ETFs all have Market SQN® scores above 1.99. Last month they were all above 2.26. As I mentioned, real estate and REITs seem to dominate the top 15.
On the bottom 15 list, everything is strong bear, mostly the Japanese Yen, and surprisingly clean energy.
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 most extreme values for each column since we started this report in 2015. The overall picture of the database is slightly weaker this month compared to last month but as I said, that’s because the US dollar now shows up as neutral.
Until the July SQN report, 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 would 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.