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.
- On a relative value basis, the financial sector is now the most overbought. For a large majority of the last year, it was a bottom dweller. The steeper yield curve and depressed share prices of the banks are attractive to some. We remain concerned about credit risks so have thus far limited our exposure to the sector. If the yield curve can steepen further we would consider adding financials.
- Utilities are overbought on a relative and absolute basis but not nearly to the degree they were last week. We reduced our exposure to the sector and will keep an eye on the sector to add it back.
- Staples, which were the most overbought sector a few weeks ago are now amongst the most oversold. Further, XLP is over 3% below its 20 dma and 50 dma. After having reduced our exposure to the sector we will potentially add back after the election.
- Most interesting in the relative and absolute graphs is the divergence between developed international markets (EFA) and emerging markets (EEM). EEM is the most overbought index and EFA the most oversold. Typically the two tend to trade in similar directions. EFA is struggling due to new COVID-related lockdowns throughout Europe. We suggest caution with EEM due to the dollar. A strong dollar is bad for Emerging Markets as they borrow heavily in dollars. The dollar is showing some signs of life. If it continues, EEM will likely feel the effects.
- Every equity sector and index we follow is below its respective 20 dma, and all but two are below their 50 dmas. Other than Realestate, Financials, Energy, and Value, they all remain above their 200 dmas. We are closely watching the 200 dma for the S&P and the sectors as it has typically provided good support. A clear break below it could spell trouble.
- We included a table showing how many sigmas each sector is in relation to its 20 dma and 50 dma.
Graphs (Click on the graphs to expand)
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
- NASDAQ QQQ
- 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
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.
Follow Michael on Twitter or go to 720global.com for more research and analysis.
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