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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 promoted all the time as the hot new areas. Last month, all of them were either bear or neutral, however, everything is bullish with just marijuana being neutral this month.
After being neutral most of last year, 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. Even at the end of June, the model was mostly red or brown and very bearish. Last month everything was neutral with a few greens and this month almost everything is bullish. Wow!
The important ETF is the US Dollar – which is now bearish and down to 93 from a high of 103 in March. That’s a pretty big drop. We had a 2nd quarter drop of 32% in GDP (annualized) – a drop bigger than anything we have seen before. If you measure your wealth in US Dollars, then we’d suggest that you protect your portfolio with cryptos or gold.
In the Asia region, Chinese, Indian, and South Korean equities are all strong bull. Australia, Japan, Malaysia, and Taiwan are all bullish, Hong Kong, Singapore, and Thailand are all neutral. There are no bearish countries in Asia.
In US market segments, the bear sectors include energy, oil and gas exploration, networking, volatility, and marijuana. Basic materials, finance, health care, oil and gas equipment, pharmaceuticals, REITs, utilities, aerospace, biotech, telecom, broker-dealers, insurance, and regional banks are all neutral. The rest are bull or strong bull.
Commodities, Real Estate, Debt, and the Top and Bottom Lists
Commodities, silver, base metals, timber and global agribusiness are strong bull. Gold, oil, coal, steel and global water are all bullish, agriculture and livestock are mixed, while natural gas is bearish.
Real estate ETFs are generally sideways, except for Europe which is bullish.
Short term bonds and inflation-protected bonds and corporate bonds are strong bull. High yield bonds are bull, while longer-term bonds are neutral, and while very long term bonds are bearish.
Every ETF in the top 15 list scores above 2.75 with eight of them above 3.0. On the bottom list, we have some ETFs in strong bear mode and the US Dollar is still the weakest ETF on the chart.
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 the most extreme values for each column since we started this report in 2015. I’m beginning to feel more and more confident that extreme numbers are a pretty sure sign of a pending reversal. And an extreme score is usually followed by a drop of at least 50% from that score during the next month. The overall picture jumped dramatically in one month from overwhelming neutral at 70% in July to overwhelmingly bullish with 81.7% in those two categories. I doubt that I’d trade that idea, but it’s worth watching. This month we are 67.7% bullish, 25.1% neutral, and 7.2% bearish.
Until the beginning of November, 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.