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.
- Of the 12 S&P 500 sectors, we track, only three outperformed the S&P over the last week. They were Technology, Discretionary, and Communications. On average, all of the sectors lost .92% to the index.
- This phenomenon is not just at a sector level. The bottom left relative graph shows that all factors/indexes are now trading slightly below fair value versus the S&P. The NASDAQ was the only factor/index to beat the S&P over the last week.
- The relative scores show all sectors except for healthcare gravitated toward fair value versus the S&P. Despite the underperformance versus the S&P, the second set of absolute charts, shows that all sectors are decently above fair value.
- The scatter plot, comparing relative scores and 20-day excess returns shows no correlation, similar to last week. This measure typically registers a very high level of correlation. This tells us that technical patterns of the past 200 days are not as predictive of returns as they had been.
- The inflationary sector index is now slightly below fair value versus deflationary sectors. Deflationary sectors (XLP, XLU, XLK, and Growth (IWE), have outperformed inflationary sectors (XLB, XLE, XLF, and Value (IVE), by over 10% since early March. Over that period, the implied 5-year inflation rate stalled at slightly over 2.5%. Implied inflation remains a key data point to assess when allocating between sectors.
- The absolute set of charts shows that most sectors and factor/indexes are well overbought. The score on the S&P 500, bottom right graph, is now as overbought, as at any time in the last ten months. The index is currently 2.30 standard deviations above its 50-day ma.
- The third graph shows the relative score of gold miners (GDX) versus Gold (GLD). Typically miners lead the way, meaning they tend to outperform gold in the early stages of a gold rally and underperform as a downtrend is starting. The circled area shows that the score of GDX, relative to GLD, shot up and peaked well before the price of GLD peaked last summer. Currently, GDX is at a higher score than the aforementioned period, possibly signaling that Gold’s recent positive positive performance may be the start of something bigger. Since March 1st, GDX is up 12.3% and GLD is up less than 2%. That said, we remain cautious as gold has been in a prolonged downtrend for about 8 months.
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 represent a ratio of the asset to its benchmark. The second set of graphs is computed solely on the price of the asset. At times 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 one of many tools we use to manage our portfolios. 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
- Inflation Index- XLB, XLE, XLF, and Value (IVE)
- Deflation Index- XLP, XLU, XLK, and Growth (IWE)
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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