November 2021 System Quality Number® Report The SQN® Report By, Van K. Tharp, PhD

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. However, all figures are relative to the US Dollar. The US Dollar Bullish ETF (UPP) is bullish at 1.14 and it makes everything look more bearish. Notice the amount of red and brown in the table indicating weak markets.

Let’s start from the left of the table in the Asia Pacific region. Asia was looking weak last month and now everything is brown or red except for India which is bullish. Only Taiwan is neutral. I have no idea why India is so strong. In the meantime, China, Hong Kong, and South Korea are all strong bear.

In the US, the NASDAQ is light green. SPY, IJJ, MDY, IJK and IJT are all neutral. The Dow 30, and IJS, IWM, and IWC are all bearish. That pattern continues into the various sectors as discussed below.

The other America’s markets are weak. Canada is neutral while everything else is bearish. Brazil and Latin America are now strong bear.

Europe is entirely neutral or bearish. Austria, France, the Netherlands, and Switzerland are neutral, while Belgium and Germany are strong bear. The Euro is still the weakest currency, so that doesn’t bode well for Europe over the next few months.

When we look at the fiat currencies, we have two bullish currencies (the US Dollar) and the Yuan. Bitcoin, which is not a fiat currency, is bullish at 1.32. The Canadian dollar, the Swiss Franc, and the Japanese Yen are bear, while everything else is strong bear. The Euro is still the worst at minus 1.46.

In the most talked-about sectors, only Bitcoin is bullish. 5G and Robots and AI are neutral. While Marijuana and online retail are both strong bear. I guess no one sees marijuana being legalized in the US anytime soon. These are just rumors. MJ is by far the worst sector. Mexico and Canada have both legalized marijuana, but the US probably won’t do so while infrastructure bills are still being fought over in Congress. I’m surprised that online retail is weak, but perhaps people are expecting all of the cyber sales to bring in much less revenue this year. I haven’t seen those numbers yet.

Now, let’s look at the individual market sectors. We have four bullish sectors: consumer discretionary, homebuilders, semiconductors, and technology. We have aerospace and defense, biotech and genome, media, telecom, and marijuana being strong bear. Everything else is either bear or neutral.

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

Commodities are quite mixed. Global water and agriculture are bullish, while silver and steel are both bearish. Commodities are neutral, gold is bearish, oil is bearish, timber is bearish, and livestock is neutral. Let me repeat that this is not what is normally expected during high inflation where this whole sector should be bullish, especially gold and commodities.

Two of our real estate sectors are no longer listed and the other two are bearish.

Long-term bonds are neutral, TIPS are bullish, while the shorter-term bonds are bearish, Generally, the shorter the term the more bearish they are.

Among the strongest ETFs this month are the crypto-related GBTC and ETHE, but only three sectors total are strong bull. The rest have SQN® 100 scores between 1.14 and 1.46. Interestingly, wheat is one of the strongest and I don’t list that in the commodities sector.

In contrast, the weakest ETFs are all strong bear with SQN® 100 scores ranging from minus 1.49 to minus 1.97. The weak sectors are quite diverse ranging from online retail, to genome, to high yield bonds and Pakistan.

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 have been keeping monthly data since January 15th, but I decided to only include quarterly data (except for the last two years). However, if a row has a record month, then I retained it. You can look at the August 2021 SQN Report to view all the months if you wish.

I have data from both yahoo.com and EODHD. Both give different results, so I’m electing to use the Yahoo data as that is what we’ve always used.

The summary numbers tend to suggest bear with about 60% being bear or strong bear and only 9.5% being bull or strong bull.

Until next month, 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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