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.
- The tables and graphs below provide a good reminder of why we run this data on a relative basis and an absolute basis. With the strong market rally this past week, the absolute readings for almost every sector and index are now largely overbought. However, the relative analysis shows that most sectors and indexes lagged the overall market. Many of them are at fair value or oversold versus the S&P 500.
- Large-cap technology stocks drove the rally. QQQ, XLK, and MTUM outperformed the S&P by about 2%. The remaining sectors and indexes underperformed the S&P on average by 1.25%. The table below shows excess returns over 5, 10, 20, and 35 day periods.
- As a result of the significant sector rotation this week, the reflation sectors (industrials, materials, and transportation) moved closer to fair value on a relative basis. On a relative basis, Emerging markets, in part due to dollar weakness, are the most overbought sector and Staples and Value the most oversold.
- On an absolute basis, all sectors and indexes, except energy and real estate are overbought. The S&P is now closing in on the late August levels of overbought-ness. Therefore, the absolute charts clearly argue a consolidation or sell-off is in order.
- The green and red table below show how each sector and index trades versus three moving averages. We tend to get bullish or bearish when they trade above or below 2 sigmas (standard deviations) from the moving average. Emerging markets are now close to 3 sigmas above its 20 and 50 dma’s.
- We urge caution as the election and implications for stimulus and other regulatory measures are likely to drive the market and sector performance. For instance, XLP is cheap, but without additional stimulus, the sector may continue to lag. Conversely, those sectors like technology and healthcare that were beaten down before the election should continue to trade better if indeed Biden wins and the Republicans keep the Senate.
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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