Technical Value Scorecard Report For The Week of 10-16-20

By Michael Lebowitz | October 16, 2020

The Technical Value Scorecard Report uses 6-technical readings to score and gauge which sectors, factors, indexes, and bond classes are overbought or oversold. We present the data on a relative basis (versus the assets benchmark) and on an absolute stand-alone basis. You can find more detail on the model and the specific tickers below the charts.

Commentary 10-16-20

  • On a relative and absolute basis, the utility and consumer discretionary sectors are the most overbought.
  • On a relative basis versus the S&P, healthcare, communications, banks, and energy are cheap. Healthcare, energy, and communications both have a lot of skin in the game in regards to the Presidential election, so they will be tougher to handicap over the coming weeks. Energy and banking remain the two most oversold sectors.
  • Banks (XLF) are an interesting play here as the ETF sits on top of its 50 and 200-day moving averages. Further, the 50-day is about to cross above the 200-day forming a so-called Golden Cross. For those wishing to buy XLF, manage risk with a stop loss a few percent below both moving averages.
  • On an absolute and relative basis, Small and Mid-cap stocks remain overbought. Foreign stocks (EFA and EEM) are back to oversold on a relative basis, yet emerging markets are still rich on an absolute basis.
  • On an absolute basis, TIPs are now oversold. They were flat on the week despite a decent performance from the other bond sectors. Inflation expectations fell slightly calling into question the reflationary recovery. This was likely the result of CPI and PPI which did not show signs of an inflationary burst.
  • Like last week, the S&P is overbought, but over the last few days, the signal has moderated.
  • When a sector is trading 3 standard deviations above its 200 or 50-day moving average or 2 standard deviations above both, a sell-off or consolidation is likely. There are no sectors that meet either criterion.
  • XLY looks to be the strongest sector on the spaghetti graphs as it runs toward the upper right-hand corner. That said, it is overbought with limited room to run. The sector is likely nearing a period of weaker relative performance.

Graphs (Click on the graphs to expand)

Technical 10-16-20, Technical Value Scorecard Report For The Week of 10-16-20

Technical 10-16-20, Technical Value Scorecard Report For The Week of 10-16-20
Technical 10-16-20, Technical Value Scorecard Report For The Week of 10-16-20
Technical 10-16-20, Technical Value Scorecard Report For The Week of 10-16-20
Technical 10-16-20, Technical Value Scorecard Report For The Week of 10-16-20

Users Guide

The score is a percentage of the maximum/minimum score, as well as on a normalized basis (sigma) for the last 200 trading days. Assets with scores over or under +/-60% and sigmas over or under +/-2 are likely to either consolidate or change trend. When both the score and sigma are above or below those key levels simultaneously, the signal is stronger.

The first set of four graphs below are relative value-based, meaning the technical analysis score and sigma is based on the ratio of the asset to its benchmark. The second set of graphs is computed solely on the price of the asset. Lastly, we present “Sector spaghetti graphs” which compare momentum and our score over time to provide further current and historical indications of strength or weakness. The square at the end of each squiggle is the current reading. The top right corner is the most bullish, while the bottom left corner the most bearish.

The technical value scorecard report is just one of many tools that we use to assess our holdings and decide on potential trades. This report may send a strong buy or sell signal, but we may not take any action if other research and models do not affirm it.

The ETFs used in the model are as follows:

  • Staples XLP
  • Utilities XLU
  • Health Care XLV
  • Real Estate XLRE
  • Materials XLB
  • Industrials XLI
  • Communications XLC
  • Banking XLF
  • Transportation XTN
  • Energy XLE
  • Discretionary XLY
  • S&P 500 SPY
  • Value IVE
  • Growth IVW
  • Small Cap SLY
  • Mid Cap MDY
  • Momentum MTUM
  • Equal Weighted S&P 500 RSP
  • Dow Jones DIA
  • Emerg. Markets EEM
  • Foreign Markets EFA
  • IG Corp Bonds LQD
  • High Yield Bonds HYG
  • Long Tsy Bonds TLT
  • Med Term Tsy IEI
  • Mortgages MBB
  • Inflation TIP

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Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research. 

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