November 2020 System Quality Number® Report The SQN® Report by, Van K. Tharp

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If you would like to read this article in a downloadable pdf format, click here.

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 promoted all the time as the hot new areas. Last month, everything was bullish and this month everything is bullish with Bitcoin, Robots and AI, and Online Retail being strong bull.

After being neutral most of 2019, equity markets made a huge move upward and became mostly green in January and February. Then COVID-19 hit and the World Market Model turned brown and red almost everywhere for the next few months.

Even at the end of June, the chart was mostly red and brown and very bearish, however, now the markets are extremely strong.

One thing to consider is that everything in the model is priced relative to the US Dollar and the US Dollar is very weak – making everything else look strong. The US Dollar ETF (UUP) is the 3rd weakest ETF of the 586 that we track in this report.

Look at the table below. It’s now almost entirely green. It’s one of the strongest looking charts I’ve seen, but perhaps that means a correction is ahead. Three Asian countries are yellow (Malaysia, Thailand, and one of our Chinese indicators). In the Americas, everything is green except Chile. In Europe everything is green except Poland, and everything is green in Africa except Egypt. I’m not sure I’ve seen that before.

There are a few currencies that are very weak, the Indian Rupee and the US Dollar. The Yen is sideways but look at the Euro (strong bull) and even with a total lockdown, the UK Pound is still bullish.

In the United States everything is either bull or strong bull. And even in the US sectors, the only sectors that are sideways are Energy and Oil & Gas Exploration. Volatility has become quiet so VXX is strong bear.

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

Even the commodities are mostly stronger – but remember everything is priced in the US Dollar. The only commodities that are sideways are gold, oil, and natural gas. Base metals, coal, steel, global water, timber, agriculture, and global agribusiness are all strong bull.

Real estate ETFs are all bullish except for Chinese real estate which is sideways.

The market is so confident that the strongest bonds are the junk bonds (strong bull) followed by inflation protected bonds (bull). Short term bonds are sideways and longer term bonds are all bearish.

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 highlighted in yellow the most extreme values for each column since we started this report in 2015.

 

The overall picture jumped dramatically in one month from overwhelmingly bullish with 81.7% in those two categories. Last month we were 51% bullish, 34.1% neutral, and 14.9% bearish. Now we are 81.7% bullish, 13.8% sideways, and only 4.5% bearish.
One thing that is interesting to me as that our GBTC offer is doing well and we are up from about 10.50 for GBTC to about 23.92 – more than 100% since we started. Some of our Super Trader candidates reached their goals of making their next payment and asked to be taken out of GBTC. Thus the program has been an immense success. I expect BTC to hit $50,000 plus by the end of 2021 and will continue to hold as much as I can in GBTC.

Until the beginning of the new year, 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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