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As we have seen in this pandemic, numerous Americans have shifted work and school into their homes. Coupled with low interest rates, this has encouraged many people to re-enter the housing market searching for properties in the suburbs hoping for more space. Earlier this week, the housing starts report came out showing that there was an increase of 22.6% in July compared to June, signaling the rise in demand in the housing industry. These numbers are actually tracked on our research platform under the symbol HOUSESTARTS. It is an index that tracks total housing starts (measured in thousands) and is updated on a monthly basis as data becomes available. This chart has reversed into X’s in June and continued higher in July with the most recent number released, after having hit a multi-year low in April. It is worth noting that the home building activity is only about 7% away from the pre-coronavirus high, and the chart is about 10% away from giving a buy signal. If you are interested in getting notified on changes of this indicator, we recommend that you utilize the Set Alert function for column and signal changes. If you want to access other economic indicator charts that we track, they can be found under Security Selection > Chart Lists > Economic Indicator Charts (bottom left).

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:

• All major bullish percent (BP) indicators remain unchanged from last week, resting (generally) in midfield position. BPNYSE currently reads the highest at 68% in a column of Xs.
• Three of the four major positive trend (PT) indicators did not experience change since the last discussion; the lone movement came from PTWORLD as it advanced higher in a column of Xs to 48%. All other PT indicators are in a column of Xs in midfield territory.
• All major HiLo indicators remain in high field position, unchanged from last week. Although elevated, remember that these indicators can remain in high field position for extended amounts of time.
• One of the major ten-week (TW) indicators advanced higher over the past week while the other three did not experience change. Similar to the movement in the world positive trend indicator, TWWORLD ticked higher in a column of Xs to 62%.
• Rounding out the updates we find two of the four major thirty-week indicators moving higher over the past week. 30ALL and 30WORLD ticked higher in a column of Xs to 60% and 56%, respectively, while 30NYSE and 30OTC reside at 60% and 58%, respectively.   

The gap between fixed income and domestic equity continues to narrow as there are just five signals separating the two asset classes. Just this month alone, domestic equity has picked up 15 new buy signals while fixed income has lost three.  As the market has recovered from the COVID-19 induced selloff, domestic equity is close to moving back to the top of the asset class ranks.  The last time domestic equity was number one was from August 2016 until March 12, 2020. 

With that said, we have seen another notable achievement come from the domestic equity Cash Percentile Rank.  To briefly review, the Cash Percentile Rank is an indicator that measures the position of a cash proxy within a specific asset class matrix. To measure this, we have constructed comprehensive RS matrices specific to each of the asset classes and included a cash proxy as a member of each. We evaluate these matrices on a daily basis to see where cash resides and then display the results, using a traffic light of sorts, assigning the specific asset class either a green, yellow, or red light. If cash resides in the bottom third of the matrix, this suggests poor RS for cash versus others in the matrix, so it gets a green light. As cash rises in the matrix and moves into the middle third, the light turns yellow. This would suggest that members of the asset class are starting to falter and that we should move towards a more cautious or hedged approach to that asset class. Once cash ascends to the top third of the matrix, the light will turn red, indicating that on an aggregate basis, the asset class has weakened enough to merit cash as a better overall investment choice relative to that particular asset class. As mentioned above, the domestic equities asset class has just shifted to a green light for the Cash Percentile Rank, suggesting a more offensive posture toward domestic equities as an asset class.

Just this week we have seen the Cash Percentile Rank for domestic equity fall below the 10% level with a current reading of 9.09%, which simply means that the cash proxy is stronger than just 9% of the domestic equity representatives in the relative strength matrix ranking.  This reading comes after a high reading of 98% in the throws of the market selloff back in March.  The reading ultimately fell below the 33% reading on July 14, 2020, officially turning the light from yellow to green for domestic equity.  Similarly, the Cash Percentile Rank for domestic equity fell below 10% back in August 2016 and remained below 10% until January 2018.  Time will tell how this trip below 10% plays out, but suffice it to say that the vast majority of the domestic equity market is ranking higher than cash these days.

Portfolio View - Major Market ETFs

Additional Comments:

Over the last week of market action, seven of the major market ETFs covered in this report finished in positive territory while three finished in the red. The top two performing funds for the week were the Invesco QQQ Trust QQQ and the Invesco S&P 500 Top 50 ETF XLG with gains of 4.82% and 2.77%, respectively, as we continue to witness those stocks in the large and mega-cap camps march higher. Small-caps struggled this week as the three worst-performing funds included the Invesco S&P 500 Equal Weight ETF RSP, iShares S&P MidCap 400 Index Fund IJH, and the iShares S&P SmallCap 600 Index Fund IJR with respective losses of -0.15%, -0.38%, and -1.32%. Today, we'll walk through how to use smaller scales/box sizes to identify tighter support levels on those charts that may be trading on a stem, such as the QQQ and the XLG.

When tracking the price action of a security over time using the Point & Figure methodology, we can target a shorter-term picture that is more sensitive to price movements by using a smaller box size to view the chart. In the images below, we look at both the default charts for the QQQ and XLG versus their respective 2-point per box charts.

In both cases, the default charts have been on a long stem of X's that have been intact since April of this year. As the indexes continue to better their highs, new X's are added to these columns, moving them further from potential support levels for those who may be entering new positions or holding open positions. When we look at the more sensitive 2-point per box charts, we can identify better areas of support and resistance. For example, the 2-point chart for the QQQ shows a pullback and subsequent reversal up into X's that occurred just this month. With yesterday's market action, this chart broke a double top at $276 before pushing higher to $278, marking the second consecutive buy signal for the fund in addition to printing a new record high. This price action also establishes support at the $266 level as a result of the QQQ's brief exhale, with additional support offered at $252. We find that these support levels are much more manageable when compared to the QQQ's default chart support, which sits at $182, more than -34.5% away from where the fund is trading today.

Concerning XLG, the 2-point per box chart reveals a total of eight consecutive buy signals that have occurred over the last four months as well as a recent rally to new all-time highs at $264. In terms of support levels for the XLG, we can identify $246 as initial support, with additional support coming in at $244 and $232. In comparison, the default chart for the XLG offers initial support at $188, over -28% away from where XLG trades today. Overall, both the QQQ and XLG offer bullish technical pictures with scores over the strong 5.50-level. Although at first glance they may appear too overbought for new positions, the more sensitive box sizes show attractive entry points at current levels, with reasonable support nearby.

SECTOR BULLISH PERCENT CHANGES

Average Level

62.20

HEAL

LEIS

TELE

COMP

BUSI

BANK

WAST

HOUS

FOOD

MEDI

FORE

prec

prot

EUTI

ELEC

CHEM

SAVI

FINA

RETA

AERO

REST

SEMI

drug

biom

meta

soft

TRAN

TEXT

WALL

AUTO

MACH

OILS

OIL

GUTI

inet

STEE

REAL

INSU

BUIL

GAME

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
GAME	REST	WALL  FORE
4	3	2	1	0

The emerging markets equity space has been the major improver for international stocks over the past few weeks, as we can see through the Asset Class Group Scores (ACGS) page. These rankings show how the score for the emerging markets diversified group has now risen back above the sought after 4 score threshold, with a recent posting of 4.01 through trading Tuesday. This marks the first time the group has been above 4.00 on an average score basis since the market decline ensued in March, which ultimately led the group to a multi-year score low of only 1.54 by the end of May. Furthermore, this recent movement also marks the highest average score for the broad emerging markets representative since May of 2018, as the space has rallied to score significantly higher than its pre-COVID readings.

Another international group that has shown noticeable strength in recent weeks is the international small cap space, which just moved to a score posting of 3.62 to notch its own highest score level since June of 2018. Furthermore, we can see that the group possesses an average score direction of 2.28, which is the 15^th highest directional reading out of all 135 groups tracked on the ACGS system. Perhaps unsurprisingly, emerging markets diversified has the highest directional reading of any non-US specific group with a posting of 2.75.

In using the ideas tab directly to the left of the international small cap group name, we can see a variety of fund representatives that have shown recent improvement. Given the recent strength displayed by broader emerging markets, it makes sense to take a look at those international small-cap funds with more focused exposure toward emerging economies. One such fund is the iShares MSCI Emerging Markets Small Cap ETF EEMS, which has moved significantly higher off its March low of $27.50 to give four consecutive buy signals while ascending to its current level of $44. This fund boasts a 4.08 recent score posting, which bests the aforementioned 4.01 score for emerging markets as well as the 3.48 average score for all non-US funds. EEMS also carries a strongly positive score direction of 3.79, which is indicative of the recent improvement from both emerging markets and specifically international small caps. The overall weight of the evidence is strong here and continues to improve, however, those looking for long exposure should note that EEMS is in a slightly elevated territory with an intraday weekly overbought/oversold reading of 78% at the time of this writing on Wednesday. Initial support can be found at $38. Note that EEMS also carries a 2.60% yield.

After completing a bearish signal reversal in last week’s trading, its first buy signal since June, the US Treasury 10YR Yield Index TNX reversed down on its default chart Wednesday when it hit 0.65%. The Five- and 10-year yield indexes remained unchanged.

In Tuesday’s trading, the NYCE U.S. Dollar Index DX/Y printed an O at $92.50 on its default chart, marking a 10-point decline since it peaked at $102.50 in March. The index has given multiple consecutive sell signals, most recently completing a bearish catapult last month and has now taken out all support it has found in the last year.

The falling dollar has been a tailwind for foreign currency-denominated fixed income and within the last month. The All Global Income Long Duration and the All Global Income All Regions groups in the Asset Class Group Scores System (ACGS) have each crossed above the 4.0 score threshold, while the Emerging Market Income group recently crossed above the 3.50 threshold and is among the top. Each of the three groups is among the top 10 most improved fixed income groups over the last 30 days (through 8/18).

Those interested in adding exposure to foreign bonds given their recent strength and the negative trend of the US dollar have several options. You can find a list of ideas for each of the foreign fixed income groups by clicking the blue number in the “Ideas” column next to the group’s name on the Asset Class Group Scores page.

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 8/18/20:

Broad Market Commodities Report

Portfolio View - Commodity Indices

Similar to the equity markets we note broadening upside participation in the alternative assets space, recently demonstrated by positive advances from lumber LBS/.

Akin to large cap growth and technology carrying the equity markets higher, precious and industrial metals were a lone bright spot in the commodities space for an extended period. However, as of lately we find increased participation from agricultural and energy-related spaces, manifesting in broad commodity tracking ETFs like the Invesco DB Commodity Index DBC giving four consecutive buy signals and reentering a positive trend. DBC also boasts a healthy fund score of 3.28 atop a strongly positive score direction of 2.90, adding to the favorable technical picture. Furthermore, the ETF is now experiencing a flip to positive monthly momentum after being negative for six months, suggesting the potential for additional appreciation. Supplementary confirmation can be found on the Asset Class Group Scores (ACGS) page as the Commodities group as a whole is just below the sought-after 3.00 average score line, an area last (briefly) visited in May of 2018.

All this said, the leaders are still leading. Darlings like Gold GC/ and Silver SI/ remain technically robust, each trading on Point and Figure buy signals near the top of their ten-week trading band. In fact, SI/ completed a bullish triangle just yesterday (8/18) and the industrial metal Copper HG/ resides just one box away from breaking a spread quadruple top to reach a 52-week high on its default chart. As for “new participants” in the commodities space, apart from a few soft commodities highlighted last week we find Lumber LBS/ demonstrating technical strength. Take for example the iShares S&P Global Timber & Forestry ETF WOOD and its largest holding Weyerhaeuser Company WY, each of which are nearing heavily overbought territory as a result of recent price appreciation. Thematically speaking, Home Depot HD even mentioned the shortage in lumber on a recent conference call and how respective prices consequently climbed (Source: wsj.com).

At the end of the day, supply and demand remain the driver of prices and temporary imbalances can lead to reversions (whether to the upside or downside). Sustained periods of demand or supply will thus lead to defined leaders and laggards, so if and when those trends change in the alternative assets space we will be sure to highlight them here.

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 12 relative strength buy signals compared to 28 last week. On the sell side, there were 16 relative strength sell signals compared to 35 last week.

Symbol	Company	Sector	Price	RS vs Market Signal	RS vs Market Column	RS vs Peer Signal	RS vs Peer Column	Tech Attrib
BELFB	Bel Fuse Inc - CL B	Industrial Goods & Svcs	12.180	Buy	X	Sell	X	4
GIL	Gildan Activewear	Cyclical Goods and Services	20.260	Buy	X	Buy	X	4
GLNG	Golar LNG Ltd	Industrial Goods & Svcs	10.320	Buy	X	Buy	X	4
HVT	Haverty Furniture Companies, Inc.	Retail	20.030	Buy	X	Sell	X	4
AOSL	Alpha & Omega Semiconductor Ltd.	Semiconductors	13.790	Buy	X	Sell	X	4
NGS	Natural Gas Services Group	Oil Drilling, Equipment Svcs	8.240	Buy	X	Sell	X	3
PRAA	Portfolio Recovery Associates, Inc.	Financial Services	44.480	Buy	X	Buy	X	5
NOA	North American Energy Partners, Inc.	Oil Drilling, Equipment Svcs	7.730	Buy	X	Buy	X	4
CBMG	Cellular Biomedicine Group, Inc	Biotechnology	18.390	Buy	X	Buy	X	5
GCP	GCP Applied Technologies Inc	Chemicals	26.850	Buy	X	Buy	X	5
REDU	RISE Education Cayman Ltd Sponsored ADR	Retail	7.450	Buy	X	Buy	X	5
KRO.TR	Kronos Worldwide, Inc. TR	Chemicals	13.495	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
FLIR	Flir Systems Inc	Industrial Goods & Svcs	37.605	Sell	O	Sell	O	0
MDP	Meredith Corporation	Media	13.130	Sell	O	Sell	O	0
MRLN	Marlin Business Services Inc.	Industrial Goods & Svcs	6.940	Sell	O	Buy	O	1
NI	Nisource, Inc.	Electric Utilities	23.580	Sell	O	Sell	O	1
STRA	Strategic Education Inc	Noncyclical Goods and Svcs	113.560	Sell	O	Sell	O	0
SFUN	Fang Holdings Ltd	Technology Services	12.115	Sell	O	Sell	O	0
NYCB	New York Community Bancorp, Inc.	Banks	9.620	Sell	O	Buy	O	1
PTCT	PTC Therapeutics Inc	Biotechnology	49.130	Sell	O	Buy	O	1
CTSO	Cytosorbents Corp.	Biotechnology	8.900	Sell	O	Sell	O	1
TRHC	Tabula Rasa Healthcare Inc	Software	47.740	Sell	O	Sell	O	0
DCPH	Deciphera Pharmaceuticals, Inc.	Biotechnology	44.610	Sell	O	Sell	O	0
OXY.TR	Occidental Petroleum Corporation TR	Oil Companies Secondary	16.209	Sell	O	Buy	O	1
LX	Lexinfintech Holdings Ltd. Sponsored ADR Class A	Financial Services	8.180	Sell	O	Buy	O	1
PAYS	Paysign, Inc.	Financial Services	6.910	Sell	O	Sell	O	0
HRC.TR	Hill-Rom Holdings, Inc. TR	Medical Products	93.399	Sell	O	Sell	O	1
NYCB.TR	New York Community Bancorp, Inc. TR	Banks	10.243	Sell	O	Buy	O	2

Daily Option Ideas for August 19, 2020