August 2015 SQN® Report by Van K. Tharp, Ph.D.

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August 2015 SQN^[sup]®[/sup] Report

by Van K. Tharp, Ph.D.

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There are numerous ETFs that now 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. Consequently, I now apply a version of my System Quality Number^[sup]®[/sup] (SQN^[sup]®[/sup]) 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 SQN^[sup]®[/sup] 100 scores > 1.47
	•	Light Green: ETFs with strong SQN 100 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 ratings that we use for the Market SQN^[sup]®[/sup] Score. The world market model spreadsheet report below contains most currently available ETFs; including inverse funds, but excluding leveraged funds. In short, it covers the geographic world, the major asset classes, the equity market segments, the industrial sectors and the major currencies.

World Market Summary – Equities & Currencies

Each month, we look at the equities markets across the globe by segment, region and sector. This month we see a dramatic change across the board. The entire world is a sea of red and brown with a few yellows sprinkled in here and there. This will actually be a much shorter report than normal because everything is so bearish. There is little to say about each sector except that it’s bearish, however, this is rather exciting because good traders can make a lot of money now that there is a clear market direction.

This month the markets in the Americas are totally red and brown. In the US, the large caps are brown. Growth is brown and just about everything else is red.

In Asia everything is red except for Japan which is brown. This is truly a global downturn. Europe is mostly brown with two sectors being red — Emerging Europe and Germany.

The US sector view shows all red and brown with a few yellow areas — meaning weak and not (yet at least) impacted as hard by the downturn. The yellow sectors include Biotech, Insurance, Regional Banks, and Volatility (VXX has been one of the bottom five sectors for a long time). The worst sectors (below -1.0) include Building Materials, Energy, Metals and Mining, and Oil and Gas Exploration. These were all weak sectors before.

In currencies, the British pound vs the US Dollar is the strongest currency pair and it is the only green area on the entire display. The British Pound by itself, however, is just yellow. Other yellow currencies include the Euro, the Swedish Krona, the Swiss Franc, and the US Dollar bearish. The US Dollar is no longer dominating the currencies as it had for a long time and is actually brown now. The Yuan went from the strongest currency to red.

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Commodities, Real Estate, Debt, Top and Bottom Lists

The next chart shows real estate, debt instruments, commodities and the top and bottom ETFs for the past 100 days.

Commodities, like everything else are all red and brown. Natural gas and livestock are brown and everything else is red. Coal is very, very weak. And gold and silver have gone back to red. Last month’s yellow commodity sectors — natural gas and global water are brown and red.

US real estate and real estate across the globe now looks weak, with everything being red.

Debt has not been a place for big money to escape. It’s brown except for very short term bonds which are yellow. Junk bonds and corporate bonds are both red. The market seems to be expecting higher interest rates.

As a group, the top ranking ETFs in the database are the weakest I’ve seen (I started doing these SQN report after 2008-9 bear market). The top 15 ETF list doesn’t have one Market SQN score above .90. And only two of them are green — the British Pound versus the US dollar and Cocoa. All the other top ETFs are yellow — which I’ve never seen before.

The bottom list includes two sectors with SQN scores below -2.0 (Coal and Emerging Markets long term debt). But everything (again) is below negative 1.5. Last month all the weakest were below negative 1.0.

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Summary

Now let’s look at the summary table which measures the percentage of ETFs in each of the strength categories.

Date	Very Bullish	Bullish	Neutral	Bearish	Very Bearish
2013	> 1.5	0.75 - 1.5	0 - 0.75	0 - -0.7	< - 0.7
Jan 31st,	27.1%	39.6%	20.7%	6.4%	4.7%
Feb 28th	10.3%	45.2%	24.4%	11.9%	7.5%
Mar 31st	39.2%	25.5%	19.1%	9.0%	6.4%
Apr 30th	49.1%	21.1%	14.8%	8.0%	6.2%
May 31st	29,2%	23.6%	19.9%	12.3%	14.2%
Jun 30th	2.1%	31.0%	23.2%	22.0%	20.9%
Jul 31st	8.2%	33.5%	29.0%	13.3%	15.2%
Aug 30th	1%	15%	46.4%	19.3%	17.5%
Sep 30th	1%	13.8%	42.3%	23.0%	19.1%
Nov 1st	13.3%	48.3%	21.8%	12.5%	3.3%
Dec 1st	14.6%	42.7%	24.2%	13.3%	4.3%
Dec 31st	19.3.%	45.5%	22.0%	11.3%	2.9%
2014
Jan 31st	8.0%	49.3%	20.7%	12.7%	7.6%
Feb 28th	18.9%	48.4%	18.1%	6.2%	6.8%
Mar 31st	4.9%	40.2%	38.8%	13.3%	3.1%
Apr 30th	11.1%	33.9%	40.2%	11.3%	1.8%
May 31st	12.5%	46.5%	27.7%	7.6%	6.0%
Jun 30th	53.4%	33.7%	14.2%	2.5%	0.8%
Aug 29th	20.3%	45.2%	22.8%	10.5%	5.3%
Sep 30th	6.6%	26.9%	30.2%	24.0%	18.5%
Oct 31st	2.9%	17.9%	38.8%	17.7%	26.3%
Nov 30th	3.1%	25.7%	25.1%	22.8%	27.9%
Dec 31st	3.7%	29.2%	24.8%	15.6%	31.2%
2015
Jan 31st	7.2%	9.4%	35.1%	25.5%	27.3%
Feb 28th	6.4%	41.1%	34.5%	11.5%	10.9%
Mar 31st	2.3%	24.0%	46.4%	19.7%	12.9%
April 30th	1.6%	13.6%	69.4%	15.0%	5.7%
May 30th	5.5%	37.4%	41.5%	14.8%	4.7%
June 30th	1.4%	15.8%	48.5%	29.0%	10.7%
July 30th	0%	7.2%	49.7%	39.0%	9.4%
Aug 31st	0%	0.4%	7.6%	49.7%	42.3%

The strong move toward neutrality that I’ve been pointing out for several months has now broken as 92% of the ETFs we track are either in bear territory or strong bear territory. Since we have been keeping records, last month was the first time where no ETFs were in strong bull territory and that continued this month.

Be careful to base your actions upon what is happening, not what you think might happen.

And right now that action is very obvious — down, down, down.

Until the September SQN Report this is Van Tharp.

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.

August 2015 SQN® Report by Van K. Tharp, Ph.D.

August 2015 SQN® Report by Van K. Tharp, Ph.D.

August 2015 SQN® Report by Van K. Tharp, Ph.D. :: Comments