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. Every ETF in the model has a Market SQN score based off of its price in US Dollar terms. The US Dollar ETF (UPP) is the only bullish currency at 1.34 – and that makes everything look more bearish.
Let’s start from the left, on the table below, in the Asia Pacific region. Asia looked weak last month and now everything is brown or red except for India which is strong bull and Japan which is neutral. In fact, if you look at the top ETFs in the database, they are dominated by India. I have no idea why, especially since the Rupee ETF is now defunct and we can’t see its relative strength. I did look at a Rupee chart and it’s pretty flat.
In the US, the NASDAQ is light green while everything else is neutral or bearish. The other America’s markets are a mix with Argentina being bullish, Mexico being neutral, and everything else is bearish. Chile is still the weakest at -1.07.
Europe, like the other regions, has one bullish country – Russia (sort of Europe), four neutral countries – Austria, Poland, the Netherlands, and Switzerland, and all the rest are bearish. The worst is Spain at -0.86.
When we look at fiat currencies, we have one bullish currency (the US Dollar) and one neutral, the Yuan. Everything else is bearish with the worst being the Aussie dollar at -1.43.
In the most talked-about sectors, the Robots and AI ETF (BOTZ) is bullish; AI and 5G are neutral and everything else is bearish. The worst sector is probably marijuana. Mexico and Canada have both legalized marijuana but the US probably won’t do so, for a while, until congress finishes the fights over the big infrastructure bills.
Now let’s look at the individual market sectors. We have three bullish sectors: semiconductors, technology, and software. We have 17 neutral sectors which you can see on the table. Twelve sectors are bearish and four are strong bear. The strong bear sectors are basic materials, homebuilders (remember how recently they were hot); Dow Transportation, and 5G (international).
Commodities, Real Estate, Debt, and the Top and Bottom Lists
Commodities are mixed and include the strongest sector on the chart – Natural Gas. Oil is bullish and three commodities are neutral – blended commodities, global water, and agriculture. The rest are bearish. Silver is actually in strong bear now. What happened to silver as an inflation hedge? Steel and timber are also strong bear. With both home builders and timber going down, there is a good chance that the housing boom is over.
Most of the real estate ETFs have disappeared although we hope they get replaced. Both are quite weak right now. What’s interesting is that I bought my house in 2018 and the current Zillow estimate for it is up about 65% from the purchase price. My last house doubled in value but that took 29 years and the appreciation didn’t even keep up with government inflation figures. My understanding is that MSFT, GOOG, and AAPL are all setting up major operations in this area in the coming years. That means we will have a minimum of 12,000 new jobs in the area with minimum salaries near $200,000. That should be a big boost to real estate around here.
While interest rates continue to stay low, the long-term bond-related ETFs are neutral and the short-term ETFs are bearish. TIPS is the only bullish debt instrument.
The top 15 ETFs in the database have lower average Market SQN® scores than the top 15 last month. Only 12 of them are strong bull while three are only bullish. As mentioned, Natural gas dominates and we have various ETFs representing India. Why money is flowing into India, I don’t know. Covid is still a huge problem there.
On the bottom 15 list, everything is strong bear. Several countries now land on the list – Pakistan, Hong Kong, and Peru. Some of them are precious metals – silver, palladium, platinum, and gold miners. It’s pretty clear to me that BTC is now the preferred inflation hedge but suddenly 1.4 billion Chinese and 1.4 billion Indians cannot buy cryptos. Making crypto illegal for Indians doesn’t usually stop them from buying but the exchanges are closing trading to Chinese citizens.
Let’s look at the summary table which measures the percentage of ETFs in each of the strength categories.
I have been keeping monthly data since January 2015, but I decided to only do quarterly data except for the last two years. If a monthly row had a record month, then I retained it in the table. You can look at the August 2021 issue and get all the months if you wish.
So, the summary numbers confirm that the database weakened further in September. Half of the ETFs in the database are now bearish. The weakening trend continues from the few months of very strong numbers in the first quarter.
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.