Market Update Webinar Replay - Missed Monday's webcast? Click the link(s) below for a recap:

Video Replay
Download Slides

Beginners Series Webinar - Join us on Friday, July 17th, at 2 PM (ET) for our NDW Beginners Series Webinar. This week's topic is Understanding the Asset Class Group Scores Page. Register here.

With the recent pull back earlier this week, we are starting to see a narrowing in participation in the large cap tech-heavy space, as illustrated by the Nasdaq 100 Index NDX. The bullish percent for NDX ^BPNDX reversed into a column of O’s and is currently sitting at 70% on the chart. As a reminder, the bullish percent measures the percent of stocks that are on a Point & Figure buy signal or controlled by demand. Remember, the bullish percent serves as a risk barometer. While this indicator is not the only chart we consider, it is worth keeping an eye on to see if defense continues to be on the field. Those with exposure to the Nasdaq 100 or its constituents should review their holdings. With the diminishing of participation, we recommend identifying viable stop loss points for positions that may be in your portfolio.

Each week the analysts at DWA review and comment on all major asset classes in the global markets. Shown below is the summary or snapshot of the primary technical indicators we follow for multiple areas. Should there be changes mid-week we will certainly bring these to your attention via the report.

Observations:

• Only one of the major bullish percent (BP) indicators experienced change over the past week. BPOTC inched lower in a column of Os to 48% while all other BP indicators remain unchanged in a column of Os near midfield position.
• Similarly, one of the major positive trend (PT) indicators moved lower on its chart last week. PTNYSE reversed down from the 56% threshold and now reads 50% in a column of Os. All other PT indicators remain in a column of Xs near midfield.
• NYSEHILO reversed back up into a column of Xs last week to join the other two HiLo indicators in high field position. ALLHILO, NYSEHILO, and OTCHILO read 90%, 92%, and 90%, respectively.
• When reviewing the ten-week (TW) indicators we find notable movement. TWALL and TWOTC edged lower in a column of Os, reading 52% and 54% now. TWWORLD reversed down into a column of Os from the 68% level and now reads 60%, while TWNYSE reversed up into a column of Xs to reach the 58% level after falling to 44% first.
• We round out our observations with all major thirty-week indicators remaining unchanged from last week, resting just beneath midfield territory.

The positive news from Moderna MRNA sent shares of the stock soaring to new highs in early market trading on Wednesday, hitting an intraday-day high of above $88 before backing off a bit. The news spurred a broad market rally causing a number of new buy signals across the board. The S&P 500 Bullish Percent BPSPX was up more than 9%, continuing a move higher in X’s. Additionally, other bullish percent charts like the S&P 600 Bullish Percent BPSML rose more than 7%, which triggered a reversal back into X’s at 58%. For much of the year, Small Cap stocks, in general, have laggard the broader equity market, but the move today in Small Caps puts the offensive team back on the field for these names and suggests much broader participation is taking shape in the market today.  

The iShares Russell 2000 ETF IWM, through Tuesday, is still down 14% on the year compared to the S&P 500 SPX which is down less than 1%. With the recent strength in Small Cap stocks, the trend chart of IWM returned to a buy signal at $146. While the score of IWM is still below 3, the return to a buy signal for IWM is, at least, an initial positive development for Small Caps, in general.

Although the broader Small Cap space has seen improvement over the course of the past few months, the Small Cap Growth space remains the dominant style within Small Caps, as well as the broader equity market. As a matter of fact, a look at the US Size & Style rankings within the DALI shows Large, Mid, and Small Cap Growth in the top three positions in terms of their relative strength rankings. At the other end of the spectrum is Small Cap Value, which currently ranks in the last place. The leadership trend within Small Cap Growth versus Small Cap Value is also visible through the fund score. Below, is a historical fund score view of the iShares Russell Small Cap Value ETF IWN versus the iShares Russell Small Cap Growth ETF IWO. For the better part of the past three years, the fund score of Small Growth has been higher than Small Value. Even more recently as the score of Small Growth has pushed above the 5.00 level, the score of Small Value has stagnated a bit in the mid 1’s. All of this is to say, that while there is improvement afoot within the Small Cap space, it is the Small Cap Growth style that maintains a leadership position in the market.

Portfolio View - Major Market ETFs

Additional Comments:

It was a generally positive week across the board as nine out of the 10 major market funds finished in positive territory. The iShares MSCI Frontier 100 ETF FM was the single fund to finish in the red with a loss of -0.04% while the best performing over the last seven days was the SPDR Dow Jones Industrial Average ETF DIA, up 2.92%. Year-to-date, the Invesco QQQ Trust QQQ continues its lead with a double-digit gain of 22.46%, followed by the Invesco S&P 500 Top 50 ETF XLG, up 6.74%. With today’s market action, we saw a handful of US major market funds give buy signals which we'll highlight below in addition to the new all-time highs recorded this week for both XLG and QQQ.

New Intraday Buy Signals: DIA, IJH, & IJR

Today, the SPDR Dow Jones Industrial Average ETF DIA completed a fourth consecutive buy signal with a double top break at $270, confirming that demand is in control. In addition, DIA just experienced a flip to positive monthly momentum after having spent the prior five months negative, suggesting the potential for higher prices. From a scoring perspective, DIA is a solid 3.59 with a strongly positive score direction of 1.11. From current levels, DIA faces resistance at $275, its June high, while initial support sits at $250, a level that has held twice since June.

The iShares S&P MidCap 400 Index Fund IJH also gave a buy signal today, marking the second consecutive to occur on its chart when it broke a triple top at $182. Although this is a positive development, IJH possesses a weak score of 2.11 and has experienced three weeks of negative weekly momentum. IJH has been somewhat range-bound over the last few months; from current levels, initial resistance sits at $184 while its June high sits at $194. From here, initial support is offered at $174. Year-to-date, IJH is down over -13% versus the S&P 500 Index SPX’s loss of -1.03%.

The iShares S&P SmallCap 600 Index Fund IJR returned to a buy signal with Wednesday’s market action with a double top breakout at $70. IJR has now formed solid support at $65, a level that it has tested on three previous occasions. Like IJH, IJR has traded in a bit of a range over the last few months and from here, faces overhead resistance at $71 and $75. Weekly momentum has been negative for two weeks and IJH remains in negative territory for the year, down over -19%. Today’s breakout is positive however we will continue to monitor for additional follow through to the upside.

Breakout on SPY

On Monday, the SPDR S&P 500 ETF Trust SPY gave a fourth consecutive buy signal on its default chart with a double top breakout at $320. With today’s action, the more sensitive 2-point chart for SPY has formed a spread triple top at $322, which would be broken with a move to $324. Currently, SPY has a solid fund score of 4.20 with a positive score direction of 1.25. Furthermore, monthly momentum just flipped positive and SPY continues to trade well above its bullish support line. From current levels, the default chart for SPY faces resistance here at $320, with the last remaining level of resistance lying at the $335 level, the fund’s all-time high from February. Initial supports sits at $300. New positions are welcome here as SPY has a relatively normal OBOS% reading of 41% overbought.

New All-Time Highs for XLG & QQQ

Earlier this week, the Invesco S&P 500 Top 50 ETF XLG printed an X at $250, marking a new all-time high for the fund. Recall that XLG returned to a buy signal in April at $205 and has continued to trade on a stem ever since. Both weekly and monthly momentum have flipped positive, suggesting the potential for higher prices for the large-cap fund. Additionally, XLG has a strong fund score of 5.63, adding to the positive technical picture. Currently, XLG is 64% overbought so those looking to initiate new positions could scale in here or wait for a minor pullback. Since the default chart is on a stem, we will use the fund’s 2-point chart to identify additional support levels. The 2-point chart reversed up into X’s with today’s action, establishing initial support at $244, while additional support sits at the $323 level.

The Invesco QQQ Trust QQQ also printed a new all-time high on Monday with a rally to $265. Similar to XLG, QQQ is up on a significant stem and initial support isn't offered until the $182 level. The 1 point per box chart, however, shows initial support available at $253 with additional support at $238. QQQ has a strong fund score of 5.86 and has experienced three weeks of positive weekly momentum and three months of positive monthly momentum. This recent move to the upside has pushed QQQ into overbought territory with an OBOS% reading of 78%, so those looking to initiate new long positions would best be served to scale in or wait for a pullback/normalization of the 10-week trading band. 

SECTOR BULLISH PERCENT CHANGES

Average Level

48.96

medi

drug

meta

GAME

auto

tele

FORE

prot

biom

CHEM

insu

fina

elec

rest

TEXT

tran

mach

aero

guti

wast

stee

real

busi

oils

savi

leis

comp

reta

inet

BUIL

oil

bank

heal

food

soft

EUTI

PREC

wall

HOUS

SEMI

0-14

16-20

22-26

28-32

34-36

38-42

44-46

48-52

54-56

58-62

64-66

68-72

74-78

80-86

88-100

SECTOR INDICATOR CHART CHANGES

PT is the percentage of stocks within a sector that are trading above their bullish support lines. RSX is the percentage of stocks within a sector whose relative strength charts are in a column of Xs. RSP is the percentage of stocks within a sector whose relative strength charts are on a buy signal. The strongest sectors, i.e. market leaders, will have most of these indicators positive and moving higher in a column of Xs.

FAVORED SECTOR STATUS CHANGES
A sector is considered to be Favored if it has 3 or 4 of the sector indicators (Relative Strength, RSX, RSP, & PT) positive, Average if it has 2 of the 4 indicators positive, & Unfavored if it has 0 or 1 of the indicators positive. The table below contains those sectors that have experienced a Favored Sector Status change over the past week. It is best to focus on sectors that are about 50% or lower on their Bullish Percent charts & are in Xs. Note: If a sector moves from Favored to Average, it doesn't necessarily mean that the sector in question has to be sold - it just means you need to evaluate your individual positions with exposure to that sector. 

Favored		Average	Unfavored
4	3	2	1	0
	wast  leis  reta  busi	stee  drug  medi  biom	rest  insu  prot
4	3	2	1	0

The past week of market action has seen continued upside movement for most major international equity markets, with the iShares MSCI Emerging Markets ETF EEM and iShares MSCI EAFE ETF EFA each posting gains in excess of 1%. If we look back at the past 30 days, however, we can see that much of the improvement has come from the emerging market space, with EEM posting a significant gain of 7.88% (through 7/14). This is depicted on the trend chart of EEM, which shows that the fund has given four consecutive buy signals since moving off its multi-year low of $30.50 in March to recently reach $43.50 earlier this month. While the improvement in technical strength is easily visible from the default trend chart, we have also seen a notable rise in the fund score of EEM, which can be seen by clicking on the actual score in the upper left-hand side of the page. EEM saw its first major score gain on July 6^th, rising over a full point from a score of 2.49 on July 2^nd to 3.56 that following Monday. The score then underwent another significant increase later that week, as the July 9^th reading saw another full point increase to 4.68. Currently, EEM remains close to that reading with a recent score posting of 4.57 following trading Tuesday. This swift improvement in score speaks to the flexible nature of the fund score system, as the readings will adjust nightly to reflect the underlying strength of the fund as examined through the 19 different factors that contribute to each fund’s score. In addition to the strong score itself, we see that EEM also carries an intensely positive score direction of 3.98, indicative of the recent ascent from its multi-year low.

Much of this score improvement can be attributed to Chinese equities, as China continues to lead the way for all non-US groups in the Asset Class Group Scores (ACGS) page with a recent score average of 4.99. China has been the highest scoring international group throughout the majority of the global equity market rally we have experienced over the past few months, and remains the only international equity group with an average group score north of 4.00. However, this continued strength has led the broader emerging market space to close the gap, with the all emerging markets equity and emerging markets diversified groups posting recent score averages of 3.59 and positive score directions of 1.99 and 2.19, respectively. Looking specifically at the score history for all emerging markets equity, we can see that this is the highest average score the group has seen since January of this year. Prior to that, the group had not scored this well since April of 2019. In fact, in looking throughout the full history of this group score, we can see that the 3.50 to 4.00 range has served as somewhat of a “cap” in score for all emerging markets equity for much of the last decade, with the exception of a one-year period from April 2017 to April 2018. The group has experienced multiple bouts of strength over this timeframe, but each have these have failed to lead to prolonged periods of strength with an average score above 4.00. The most recent rally for emerging markets makes this historical relationship a place to keep a close eye on as we head down the remainder of the year.

The US Treasury 10YR Yield Index TNX gave a second consecutive sell signal at 0.60% in last week’s trading. The index has completed a series of lower tops and lower bottoms since rallying to 0.95% in June.

Convertible bonds have reached the top of the Asset Class Group Scores (ACGS) fixed income rankings with an average group score of 4.86, the highest level it has ever reached; the group now ranks sixth out of all 135 groups in the ACGS system. There are now 20 fixed income groups with average scores above the 4.0 threshold.

After reaching an all-time high of $76 in Monday’s (7/13) trading, the iShares Convertible Bond ETF ICVT reversed down on Tuesday and currently sits at $73 on its default chat. ICVT currently has a near-perfect 5.88 fund score and a positive 4.33 fund score direction. Since bottoming in at $47 in March, the fund has given four consecutive buy signals. Year-to-date (through 7/14) ICVT has gained 17.83% outperforming the S&P 500 SPX which has returned -1.03% and the iShares US Core Bond ETF AGG which has notched a price return of 5.61%. The fund currently yields 1.56%. Even with this pullback, ICVT remains in overbought territory with a weekly overbought/oversold reading of 80%, so those considering adding exposure may be best served to do so on a pullback or after prices have normalized at current levels. ICVT has most recently found support at $66.

Remember, these are technical comments only. Just as you must be aware of fundamental data for the stocks we recommend based on technical criteria in the report, so too must you be aware of important data regarding delivery, market moving government releases, and other factors that may influence commodity pricing. We try to limit our technical comments to the most actively traded contracts in advance of delivery, but some contracts trade actively right up to delivery while others taper off well in advance. Be sure you check your dates before trading these contracts. For questions regarding this section or additional coverage of commodities email james.west@dorseywright.com.

Data represented in the table below is through 07/14/2020:

Broad Market Commodities Report

Portfolio View - Commodity Indices

When last discussed on June 24th, Doctor Copper was already pushing up against its pre-COVID levels at $2.66, as the shorter-term chart ($0.02 scale) for Copper Continuous HG/ gave six consecutive buy signals following its multi-year low of $2.12 established in March. Today (as of 7/14), HG/ resides at $2.92, on seven consecutive buy signals on the short-term chart and almost marking a full 10% gain from just three weeks prior! Notable qualitative and thematic hypotheses are also at play here. As stated in the Wall Street Journal this morning, “Global investors are piling into bullish wagers on copper prices, sparking the quickest rally in the industrial metal in years and signaling that many money managers remain hopeful about the economic outlook despite rising coronavirus cases in much of the U.S. Keep in mind the wide-ranging and fundamental uses of copper, spanning from electronics to house construction, underscoring its rationale as a leading economic indicator.

The rapidly improving technical picture can largely be attributed to front-month copper futures climbing in 12 consecutive sessions through Monday, reaching their highest level in over a year (wsj.com). Revisiting the shorter-term chart ($0.02 scale) for HG/, the seven consecutive buy signals previously discussed pushed copper into heavily overbought territory, most recently pulling back into a column of Os at $2.90. Despite the reversal down, HG/ remains heavily overbought and well-above its nearest support level at $2.56. Pivoting to the iPath Series B Bloomberg Copper Subindex Total Return ETN JJC, we also find technical strength. JJC sports an optimal fund score of 4.07 and strongly positive score direction of 2.67. Furthermore, the fund trades on five consecutive buy signals and also pulled back in the most recent trading session, now residing just below the top of its ten-week trading band. Weekly and monthly momentum are also both positive for HG/ and JJC, suggesting the potential for additional price appreciation. Further bullish confirmation for HG/ would come with a move to $3.00 on its default chart (pictured below), resulting in a spread triple top break. Further bullish confirmation for JJC would come with a reversal back up into Xs, resulting in a higher bottom.

Relative strength is a measure of how a stock is performing when compared to something else, in this case the S&P 500 Equal Weighted Index (SPXEWI). Each day the stock's closing price is divided by that of the SPXEWI, the resulting numbers decimal is moved two places and then plotted on a Point & Figure chart. Whenever the relative strength chart shows a double top buy signal (e.g. RS Buy or Positive Relative Strength), it suggests the stock is likely to outperform the market for the foreseeable future. Conversely, whenever the relative strength chart gives a double bottom sell signal (e.g. RS Sell or Negative Relative Strength) it suggests the stock will under-perform the market. Relative strength signals tend to last roughly 18 to 24 months on average. Consequently, changes from buy signals to sell signals (and vice versa) are important to be aware of as they are longer-term implications of a stock's likely performance versus the indices. Using the Point & Figure chart along with the relative strength chart will allow you to better ascertain risk-reward and other trade management tools, but we always want to over-weight our portfolios toward those stocks that are on RS buy signals, giving us the best chance of outperforming the broader market.

In the Optionable Universe, this week we saw 19 relative strength buy signals compared to 19 last week. On the sell side, there were 21 relative strength sell signals compared to 17 last week.

Symbol	Company	Sector	Price	RS vs Market Signal	RS vs Market Column	RS vs Peer Signal	RS vs Peer Column	Tech Attrib
AEIS	Advanced Energy Industries	Industrial Goods & Svcs	70.020	Buy	X	Buy	X	5
AMAT	Applied Materials, Inc.	Semiconductors	62.540	Buy	X	Buy	X	5
CRH	CRH plc (Ireland) ADR	Construction	37.160	Buy	X	Sell	X	4
HRI	Herc Holdings Inc	Noncyclical Goods and Svcs	32.880	Buy	X	Sell	X	4
FQVLF	First Quantum Minerals Ltd.	Basic Resources	10.210	Buy	X	Buy	X	5
FBHS	Fortune Brands Home & Security Inc.	Construction	66.710	Buy	X	Sell	X	4
PRCP	Perceptron Inc	Industrial Goods & Svcs	6.500	Buy	X	Buy	X	5
LUNMF	Lundin Mining Corporation	Basic Resources	6.082	Buy	X	Buy	X	5
JKS	JinkoSolar Holding Company Limited	Industrial Goods & Svcs	20.900	Buy	X	Buy	X	5
SCCO	Southern Copper Corporation	Basic Resources	42.470	Buy	X	Buy	X	5
SPWR	Sunpower Corporation	Industrial Goods & Svcs	9.865	Buy	X	Buy	X	5
XENT	Intersect ENT Inc.	Medical Products	18.130	Buy	X	Buy	X	5
TDOC	Teladoc Health Inc.	Healthcare Providers	209.220	Buy	X	Buy	X	5
TPIC	TPI Composites Inc	Industrial Goods & Svcs	25.780	Buy	X	Buy	X	5
NEW	Puxin Ltd. Sponsored ADR	Retail	8.970	Buy	X	Sell	X	3
UPWK	Upwork, Inc.	Technology Services	13.870	Buy	X	Sell	X	4
AEIS.TR	Advanced Energy Industries TR	Industrial Goods & Svcs	70.020	Buy	X	Buy	X	5
SPWR.TR	Sunpower Corporation TR	Industrial Goods & Svcs	9.865	Buy	X	Buy	X	5
FOUR	Shift4 Payments, Inc. Class A	Industrial Goods & Svcs	37.760	Buy	X	Buy	X	5

Symbol	Company	Sector	Price	RS vs Market Signal	RS vs Market Column	RS vs Peer Signal	RS vs Peer Column	Tech Attrib
ABCB	Abc Bancorp	Banks	21.010	Sell	O	Buy	O	1
ADS	Alliance Data Systems Corporation	Industrial Goods & Svcs	40.530	Sell	O	Sell	O	0
DENN	Denny's Corporation	Cyclical Goods and Services	8.110	Sell	O	Sell	O	0
DVN	Devon Energy Corporation	Oil Companies Secondary	10.430	Sell	O	Sell	O	1
FBNC	First Bancorp North Carolina	Banks	21.920	Sell	O	Buy	O	1
GBCI	Glacier Bancorp Inc	Banks	32.910	Sell	O	Buy	O	2
DIN	DineEquity, Inc.	Cyclical Goods and Services	35.130	Sell	O	Buy	O	1
JAKK	Jakks Pacific	Cyclical Goods and Services	6.330	Sell	O	Sell	O	0
RRGB	Red Robin Gourmet Burgers	Cyclical Goods and Services	7.480	Sell	O	Sell	O	0
TOWN	Towne Bank	Banks	17.700	Sell	O	Buy	O	1
TSN	Tyson Foods, Inc.	Food and Beverage	58.810	Sell	O	Buy	O	1
VHC	Virnetx Holding Corporation	Software	5.520	Sell	O	Sell	O	1
FNHC	FedNat Holding Co	Insurance	10.630	Sell	O	Buy	O	1
EPZM	Epizyme	Biotechnology	14.790	Sell	O	Buy	O	1
ARDX	ARDELYX, INC.	Biotechnology	6.390	Sell	O	Sell	O	1
NLTX	Neoleukin Therapeutics Inc.	Pharmaceuticals	11.120	Sell	O	Sell	O	0
GWB	Great Western Bancorp Inc	Banks	12.870	Sell	O	Sell	O	0
VERI	Veritone Inc	Technology Services	11.420	Sell	O	Buy	O	2
CHX	ChampionX Corp.	Industrial Goods & Svcs	8.850	Sell	O	Buy	O	1
ADS.TR	Alliance Data Systems Corporation TR	Industrial Goods & Svcs	41.439	Sell	O	Sell	O	0
UHT.TR	Universal Health RLTY Inc T TR	Equity REITs	69.129	Sell	O	Buy	O	1

Daily Option Ideas for July 15, 2020