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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.
After being neutral most of 2019, the 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. Last month almost everything was bullish; however, October was sideways. In the hot areas, we see strength in online retail and Robots and AI, but marijuana is red.
Look at the table below. It’s now mostly yellow and brown. Some Asian countries are green while European countries are brown, and the US (sectors) is mostly yellow. The most important ETF in the model is the US Dollar – which is now bearish. The USD Index is down from a high of 103 in March to about 93 now. That’s a pretty big drop. The US passport has gone from being the best passport in the world to one of the worst with over 100 countries wanting US Citizens to stay away because of our poor response to COVID-19. If you measure your wealth in US Dollars, then we’d suggest that you protect your portfolio with cryptos or gold.
The US also had a 2nd quarter drop of 32% in GDP (annualized) – a drop bigger than anything we have seen before.
In Asia, Chinese, Indian, and Taiwan equities are all bullish. Japan and South Korea are both sideways. Australia, Hong Kong, and Malaysia are all bearish, while Thailand is in strong bear mode.
In the United States, everything is sideways except the DOW 30, which is slightly bearish. Canada and Mexico are both sideways, while Latin American and South American countries are bearish.
Europe looks really down. We have three sideways markets – the Netherlands, Sweden, and Switzerland but everything else is bearish. Poland is strong bear.
In the US market sectors, the strong bears are in marijuana, energy, oil and gas exploration, and oil and gas equipment. Bear sectors include REITs, telecom, networking, insurance (fire and hurricanes?), broker-dealers, and gaming. The performance of broker-dealers might be a good measure of the long term health of the market. Most sectors are yellow, but we still have a few strong areas including – consumer discretionary, homebuilders, retail (I assume this is mostly online), semiconductors, and transportation (I’m not sure I understand how transportation can be bullish as travel is way down).
Commodities, Real Estate, Debt, and the Top and Bottom Lists
Even commodities are weaker. The strongest areas are silver, base metals, timber, and agriculture. We have mostly sideways ETFs – gold, natural gas, steel, global water, livestock, and global agribusiness. Oil and coal are both bearish.
Real estate ETFs are generally mixed. Europe is bullish, China is neutral, and real estate overall is bearish.
In bonds, inflation-protected bonds are strong bull, long term bonds are bull, corporate bonds, junk bonds, and 1-3 year bonds are sideways, while all the longer-term bonds are bearish.
The hot areas on the top 15 list are again clean energy – assuming a Biden win in the presidential election.
On the bottom 15 list, everything is still strong bear and they are all lower than minus 1.19. The bear section is the opposite of the bull because the emphasis is on energy (oil and coal) as the worst area.
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 –
Above, I have highlighted 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% of the database in the very bullish or bullish categories. This month the database has 51% bullish, 34.1% neutral, and 14.9% bearish.
One thing that is interesting to me is that our GBTC offer is doing well and we are up from about 10.50 for GBTC to about 15.50 – which is almost a 50% gain since July. That program is now closed as I won’t guarantee the downside for GBTC when it is above 12.50.
Until the beginning of December, 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.