Near-term domestic equity improvement has led the Money Market Percentile Rank (MMPR) to push further south, however, low volatility equities continue to score well below our cash proxy.
The past week has seen volatility in domestic equity markets continue, however, the movement has largely led to technical improvement on the individual charts of the major domestic equity indexes. One area that we have continued to focus on has been the 20-point chart of the S&P 500 Index SPX, which we saw continue higher earlier this week to move back to a positive trend at the 2960 level before pushing further to 2980 following trading Wednesday. We have seen this domestic equity improvement reflected at the top end of the Asset Class Group Scores page as well, with eight domestic equity-focused groups now scoring north of the 4.00 average score line and only three fixed income areas maintaining this higher field position. Recent strength has been especially noteworthy in the US mid-cap growth and aggressive growth groups, as we continue to see growth push higher on the heels of the US large-cap growth camp. Precious metals have also been an area of some significant improvement in recent weeks, with a specific focus on the recent rally in silver that was discussed in yesterday’s Alternative Investment Spotlight.
The “risk-on” strength that continues to be displayed at the top of the ACGS page is furthered by the continued fall of the Money Market Percentile Rank (MMPR), which has moved south to 35% following trading on Wednesday. In looking at the cash proxy used in the MMPR, we see that the US money market group has continued to show a downtick in its average score, with other areas continuing to push higher. US money market comes in at a recent score posting of 2.45, with quite a few other areas scoring just below the space. Namely, we see that the all mid-cap, growth & income, industrial, and Japan groups have each shown a near-term rise in score to be poised just beneath the US money market group. Keep an eye on these spaces for further follow through to the upside that may lead the MMPR to continue lower.
One group that still sits below money market but has perhaps surprisingly not shown improvement has been low volatility equities. This group comes in at an average score of 2.13 and a negative score direction of -1.85, further indicating its lack of near-term strength. In fact, we see through a view of the historical group score of the low volatility space that this recent posting marks the lowest score since the creation of the group in March of last year.
When we take a look underneath the hood at the funds that make up this space, we see a majority of the weaker scoring areas stemming from laggard areas such as international equities and small-caps. With that said, the large-cap focused low volatility space has not held up well compared to its broader benchmarks, with the Invesco S&P 500 Low Volatility Portfolio SPLV showing a year-to-date return of -17.72%, more than twice the decline of SPX at a return of -8.02%.
The addition of another growth-oriented factor onto the low volatility screen has played out better, as we see displayed through the First Trust Dorsey Wright Momentum & Low Volatility ETF DVOL. This fund has advanced off its recent bottom of $14.75 to give two consecutive buy signals and currently sits at a double top formation at $20. A movement to $20.50 would complete a bullish catapult pattern, furthering its improved technical picture. The 3.37 recent score posting of DVOL also bests the average low volatility fund at 2.18 as well as the average growth & income fund at 2.42. The ETF also carries a low relative-risk score of 0.93 and a yield of 1.97. The recent improvement has left initial support offered at $19.25 with further support at $19 and $18.75.
