November 2019 System Quality Number® Report The SQN® 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

The US Dollar has moved back to bullish with a Market SQN of 0.95. There are only two green currencies this month, the Indian Rupee (remaining light green) and the US Dollar. The Aussie Dollar (last I looked a US Dollar was 1.47 Aussie dollars) and the Euro and BTC are all really weak. I expected the British Pound to be weak but it’s neutral. The Canadian Dollar, the Japanese Yen, the Swedish Krona, the Swiss Franc, and the Yuan are all weak currencies right now.

 


Each month we look at the equities markets across the globe by segment, region, and sector. In November, the equity markets continued returning to yellow after being brown and red for the last few months.

In the US, equities from large to small and value to growth are uniformly yellow. The other countries in the Americas, however, are not doing as well. Chile and Argentina are both red. Brazil and Latin America are both brown, while Canada and Mexico are neutral.

I’m no longer talking about every sector in the US and what each is doing. 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. Oil and Gas are weak as is Energy. Homebuilders is the only green sector right now. While we have a few light greens – Healthcare, Semiconductors, Technology, and Aerospace/Defense, most sectors are yellow.

Notice that Asian equities are mostly brown and yellow with only a few greens. Taiwan and Japan are both light green. Malaysia and Thailand are both red while Hong Kong and Singapore are both brown.

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

Three commodities are light green – Silver, Global Water, and Timber. Gold moved back down to neutral and we have one red sector which is Coal. Coal is the worst energy source for global warming and there has been movement away from coal for some time.

 


Real Estate is neutral in the US and weak in China. Prices in these areas, however, are probably the inverse to the strength.

Interest rate based ETFs have moved from mostly light green last month to yellow. Corporate bonds are bullish at 0.98. And high yield bonds are almost bearish with a Market SQN score of 0.01.

In the top 15 for November, we only have one strong bull. The rest are all light green and almost anything above 1.0 would make the top 15. Homebuilding is the strongest ETF. On the bottom list, three symbols are less than -2.0 and the rest are all less than -1.11. Alerian MLP (energy infrastructure) is the weakest.

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 –

Only 0.2% of the ETFs are very bullish and only 7.8% are very bearish. That leaves 92% of the ETFs in the database in the three middle categories.

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.

Until next time,

Van

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