Monday Market Update Webinar Replay: Missed Monday's (8/17) webcast? Click the link(s) below for a recap:

Webinar Replay

Download Slides

Upcoming KKM webinar:  Join KKM on Wednesday, August 19th at 3 pm ET for a webinar focusing on models powered by Nasdaq Dorsey Wright methodology. The topic will be on "Dynamic & Active: Time to revisit two investment themes (powered by Nasdaq Dorsey Wright) for 2020", which is hosted by KKM and sponsored by Adhesion Wealth. Click here to register.

Odds and Ends: The S&P 500 hits a new intraday high and Silver continues higher.

The S&P 500 Index SPX reached a new intraday high of 3395.06 and printed an X at the 3390 mark on its default chart (Source: FactSet). The S&P 500 Index Funds group is the highest scoring group within the macro grouping on the asset class group scores page with an average score of 4.62. On its Point and Figure chart, SPX now sits at resistance established in February of this year.

Precious metals have been a bright spot as the iShares Silver Trust SLV broke a double top with today’s intraday action to complete bullish triangle and is now on its fourth consecutive buy signal. SLV has a fund score of 5.09 and a positive score direction of 3.08. Recent price action has put SLV into heavily overbought territory with an overbought/oversold reading of 134%. Those wishing to take a long position may be best served to wait for a pullback or price normalization before doing so. The precious metals group on the asset class group scores page currently has an average group score of 4.44 highlighting the strength of the sector.

• Innovator expands its defined outcome ETFs to the fixed income space.
  • The Innovator 20+ Year Treasury Bond 9 Buffer ETF – July (TBJL) and Innovator 20+ Year Treasury Bond 5 Buffer ETF – July (TFJL) are both designed to track the share price of the iShares 20+ Year Treasury Bond ETF TLT with caps on upside performance and downside limits.
  • TBJL protects against the first 9% of losses during the outcome period with an upside cap of 9.25%
  • TFJL has a hard floor that only allows a maximum loss of 5% with an upside cap of 6.75%.
  • Both TFJL and TBJL carry an expense ratio of 0.79%.

• Announced in June, iShares officially shuts down 8 of its ETFs.
  • The shuttered ETFs include:
    • iShares Edge MSCI Min Vol Europe ETF (EUMV).
    • iShares Currency Hedged MSCI Australian ETF (HAUD).
    • iShares Currency Hedged MSCI Italy ETF (HEWI).
    • iShares Currency Hedged MSCI Switzerland ETF (HEWL).
    • iShares Currency Hedged MSCI Spain ETF (HEWP).
    • iShares Currency Hedged MSCI South Korea ETF (HEWY).
    • iShares Europe Developed Real Estate ETF (IFEU).
    • iShares Edge MSCI Min Vol Japan ETF (JPMV).

• Exchange Traded Concepts launches an ETF that focuses on companies with more than one share class.
  • The North Shore Dual Share Class ETF (DUAL) tracks an underlying index’s components that are drawn from the largest 3,000 companies listed in the U.S. and comes with an expense ratio of 0.85%.
  • Of these 3,000 companies, they must meet a minimum size threshold and must have has an initial public offering at least six months previously or within no more than the last 20 years.
  • The index currently has 177 components as of the end of April.

(Source: etf.com)

There has been talking in the financial media about the so-called “reopening” or “rotation” trade, i.e. a rotation out of the stocks/sectors that held up best and recovered earliest from the coronavirus sell-off, primarily technology stocks, and into areas that should benefit as the economy recovers.

One area of the market that has lagged, but that has recently shown relative strength is the industrials sector. Year-to-date (through 8/17), the S&P 500 Industrials Sector .SPSI  is down -4.83%, trailing the broad S&P 500 SPX, which is up 4.63%, by almost 9.5% and while the S&P 500 matched its all-time chart, which it reached in February, SPSI is -7.63% over the same period (2/19 – 8/17). In last week’s trading, the industrials group climbed above the 4.0 score threshold and into the blue zone within the Asset Class Group Scores (ACGS) for the first time since February, placing it in the top third of all 135 groups in the ACGS system. While industrials remains in the bottom half of the DALI domestic equity sector rankings, it has improved in recent months. After falling to 10th place and hitting a low of 82 signals, industrials has gained 42 signals and climbed to seventh place; only the consumer cyclicals sector has gained more buy signals during the same period.

Investors who want to add exposure to the industrials sector have a variety of options at their disposal. Today we’ll take a look at two of them – the iShares U.S. Industrial ETF IYJ which offers exposure to the broad industrials sector and the Invesco DWA Industrials Momentum ETF PRN, which utilizes a momentum or relative strength overlay among stocks in the sector.  

The first fund we will examine that has been indicative of the recent improvement within the industrials space is the broad iShares U.S. Industrial ETF IYJ. This fund fell to a multi-year low of $102 with the broad market decline in March, before reversing higher to move back to a positive trend in May at $142 and most recently completing a bullish triangle in July, leading the fund to current levels at $168. While the fund has shown a gain of over 61% since its bottom on March 23, outperforming the S&P 500 Index SPX that has risen 51% during the same timeframe (through 8/17), IYJ remains just over 4.5% off a new all-time chart high, which would come with movement to $176. Furthermore, the price normalization over the past week has led the fund to more actionable territory with an intraday weekly overbought/oversold (OBOS) reading of 62% at the time of this writing.

The near-term strength of IYJ is also displayed by the favorable recent 4.30 fund score posting, which bests the average industrials fund of 4.18 as well as the average all US fund at 3.71, and is paired with a strongly positive score direction of 2.87. Weekly and monthly momentum also recently flipped positive, suggesting the potential for further upside from here. The technical picture is strong and continues to improve, however, those considering long exposure should note that IYJ is on somewhat of a stem at current levels, with initial support offered at $146 and further support potentially found at $144.

In order to gain more perspective on the movement within the fund that has produced this near-term strength, we can examine the exposure breakdown of the underlying holdings for a more focused view of the underlying holdings. This shows that the two largest industry exposure are aerospace & defense and data processing services which each have weightings of around 14%.

The Invesco DWA Industrials Momentum ETF PRN has a strong 5.30 fund score, 1.12 points better than the average for all industrial funds and a positive 2.34 fund score direction, speaking to the recent improvement of the fund and the sector. While the broader industrials sector has not reclaimed the all-time high it reached in February, PRN reached a new high on its default chart last week after giving its fifth consecutive buy signal. Also unlike the broader industrials sector, PRN has outperformed the S&P 500 year-to-date (though 8/17) as it gained 11.86% versus 4.68% for the index.

While both IYJ and PRN are industrial sector funds, the year-to-date outperformance of PRN (11.86%) vs. IYJ (0.10%) shows that the fund has clearly benefited from its momentum overlay and looking at the industry allocations of each fund we can see that there notable differences between the two portfolios. As with IYJ, PRN's largest allocation is to aerospace & defense, however, PRN's second largest allocation, at around 11% is electrical products, more than twice IYJ's allocation. PRN also has approximately a 7% allocation to wholesale distributors. 

Two Invesco Model Changes: GUGGSO & POWERSMALL
There are changes to two Invesco models this week. First, the Invesco Small Cap Sector Model POWERSMALL sold the Invesco S&P Smallcap Healthcare ETF PSCH and added the Invesco S&P Smallcap Consumer Discretionary ETF PSCD. PSCH was removed because its rank in the model’s relative strength... (Read more)

New Highs for the iShares Russell 1000 Growth ETF IWF
There are no changes to any of the iShares models this week. The iShares Russell 1000 Growth ETF IWF gave an eighth consecutive buy signal on its default chart last week when it completed a bullish catapult at $210, marking a new all-time high for the fund. Large cap growth continues to lead the DALI domestic equity size and style rankings as it has for the majority of the year... (Read more)

ETF Spotlight: VictoryShares US 500 Enhanced Volatility Wtd WTF CFO
Whether evoking alarm, happiness, or confusion, broad large-cap equity indices are within single digits of new all-time highs; a topic further articulated in last week’s (8/13) Prospecting: Peak to (almost) Peak section. In fact, although summer months are historically associated with lackluster returns in the investment world, 2020 is on track to override its Summertime Blues as the S&P 500 SPX, Dow Jones Industrial Average DJIA, and Nasdaq Composite NASD have currently posted gains of 14.43%, 13.81%, and ... (Read more)