May 2020 System Quality Number® Report The SQN® Report by, Van K. Tharp, Ph.D.

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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.

We’ve added a section with a few categories I see promoted as the hot new areas. This month, all of them are cold being either bear or neutral. The strongest is GBTC. Our data didn’t come through for AIIQ, but based upon the price chart, it’s probably neutral. It had a huge decline with a V-bottom but the uptrend has not taken it anywhere near the old highs.

The US Dollar moved from bullish to almost zero which is surprising given the size of the multiple stimulus packages. When traders compare the situation in the US to other countries, however, the US Dollar doesn’t look so bad.

This month, only the Swedish Krona is green. The yen, Swiss franc, US dollar and BTC are all neutral but suddenly we are missing data on the Brazilian Real.
US equity segments have taken a decided turn to the downside. EVERYTHING is bearish or neutral so it’s a little stronger than last month. In addition, all of the countries in the Americas are also red or brown.

Asia is totally red and brown with the exception of China which is still neutral. Should we assume that the Chinese government is supporting their market just like the Fed is supporting our market? The country in Asia with the worst Market SQN score is Singapore but surprisingly, it pretty much has the virus 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 is red also probably because of China’s crackdown on its ability to function independently of the mainland.

It’s the same story in Europe — everything is red (strong bear) or brown (bear). Last month Greece was an exception, but it’s now brown. In Africa, everything is brown except 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-related.

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

Commodities are mostly brown or red with one exception — gold. Silver would likely be strong like gold but the data for SLV did not come through.

US and European real estate symbols are strong bear with China real estate being neutral.

Interest rate product 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 11 strong bull funds and the rest are just bull. The top ones are mostly interest rate ETFs and volatility ETFs. The Swedish Krona is now in the top 10, and I have no idea why.

On the bottom list, only 1 of the 15 funds has a Market SQN score worse than minus 2.0. (as opposed to 13 of them two months ago). The bottom list includes a lot of energy and commodity sectors. Thus, the market is not expecting the huge amount of stimulus money to create inflation — but rather to help us avoid a deflationary depression.

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.

The overall picture is slightly less bearish this month but it’s still overwhelmingly bearish. 71.5% of the database is bear or strong bear right now compared to 78.3% at the end of April.

Until July, 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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