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If you previously used the “Other Ideas” tool/link on the NDW Research Platform and found yourself puzzled in recent weeks when it seemingly disappeared, rest assured it simply has a new home above the Point and Figure trend chart.

Just like before and as the name implies, the “Other Ideas” link/button is designed to provide a list of alternate investable options (stocks, ETFs, or funds); however, keep in mind that it also incorporates a few technical screens by default. In order to make the list a security must be: in the same sector, trading above their bullish support line, on a Point and Figure trend chart buy signal, and have a technical attribute or fund score above 3.0. Furthermore, with the “Other Ideas” window note that each column header is sortable and users have the option to send names to a portfolio, matrix, team, or quilt.

Perhaps a practical use case for the “Other Ideas” (now) blue button is this: you own(ed) a particular name yet it has suffered lately, resulting in a weak technical picture; however, you still want exposure within the space and would like to quickly see technically strong alternatives/substitutes. Another being: maybe you stumble across a technically strong name but it is heavily overbought and/or too volatile, using the “Other Ideas” button could provide a list of alternate yet similar choices.   

We’re less than two weeks away from entering the month of September, which has earned a bad reputation with investors over the years.  Historically, September has been the single worst-performing month for the S&P 500 Index SPX, the Dow Jones Industrial Average DJIA, and the Nasdaq Composite NASD (source: Stock Trader's Almanac 2020). The Almanac says “September is when leaves and stocks tend to fall; on Wall Street, it’s the worst month of all.”

As a result of the poor equity performance, many investors look for opportunities in assets with low correlations to equities in the month of September.  One asset in particular that receives a lot of credit for helping investors through this frustrating month is gold, and the numbers below support this statement. Gold has posted a positive return in 21 out of the 33 Septembers since 1987. In other words, September has been a positive month for gold investments about 64% of the time. The average return for gold during all 33 Septembers measured comes out to 1.69%, with an average of 4.98% during positive Septembers.

In the table below, you will also see the historical September returns for different asset classes as far back as data exists in our system. Not surprisingly, areas like gold, crude oil, and bonds have provided the best returns. In fact, each asset class (with the exception of US large-cap and mid-cap) has a greater historical probability of producing a gain for the month of September than it does at producing a loss. However, up versus down is just half the story -- the degree of those moves is another thing to consider. Take a look at the two international equity proxies in the table (the developed and emerging stock indexes). Even though they have historically posted a gain more than 50% of the time, the losing years outweigh the winning years in terms of the magnitude of movement. For example, developed international stocks have seen gains in 58% of the Septembers going back to 1980, producing an average return of 3.62%. However, during the years when this index was down during September, the average loss was -5.44%.  As a result, the average return for the month of September is in the red at -2.3%.  Similar numbers can be seen for US small-cap stocks as well.

Although September is generally recognized as a poor month for equity investors, there have been a few impressive outlying Septembers, such as 2007, 2009, 2010, and 2013, all of which saw gains of 3% or greater for the SPX. Even though September has not generally been kind to the broad equity indexes, there have been opportunities provided by sector rotation. Take 2008 for instance. The SPX as a whole was down -9.20%, however, the DWA Bank Sector Index DWABANK actually provided a gain in excess of 5%. On the other side of the story, the Steel & Iron sector DWASTEE fell 31.8%, bringing the performance differential for September 2008 to 37.2%, the second-largest dispersion of all Septembers since 1999. On average, this differential is around 23% over the last 20 years. Last year, the DWA Textiles Index DWATEXT was up 10.1% while the DWA Precious Metals Index DWAPREC was the worst-performing, finishing down –12.4%. This was the largest difference between the best and the worst-performing in the last five years, although it was slightly below the average for the entire lookback period.

In the table below, you can see the best and worst-performing sectors during the month of September for each year going back to 1999.  While Precious Metals has been the best performing sector five times, the most of any sector, it also tied for most Septembers as the worst performing sector with five; Semiconductors has also been the worst-performing sector in five Septembers.

We have no way of knowing whether this September will be positive or negative for the market and there are no shortage of factors this year that could sway performance one way or the other. However, it is beneficial to be aware of how September came to be known as the worst month for stocks and how other areas of the market have fared historically.

The domestic equity market has continued to push higher over the past week, with most major indexes either printing or nearing new all-time highs. This has led to further improvement from the US equity core percentile rank (CorePR), which has risen to a recent level of 92.96%, as those large cap names which make up the representative for this reading have outpaced most other investible areas of the market. This continued strength from risk-on assets has led to a further dampening of the money market percentile rank (MMPR), which comes in at a recent posting of 6.34%.

While the domestic equity improvement has been the major focus of most of our research over the past few weeks, there are certainly other risk-on assets showing near-term improvement, such as commodities. The commodities conversation has been largely centered around precious metals throughout most of the market rally, and rightfully so, as the precious metals group on the Asset Class Group Scores (ACGS) page remains in elevated score territory with a recent average score of 4.45. While this is not as high as the 5.12 score that the group posted earlier this month, the space has continued to maintain strength among the top 20 groups on the entire ACGS system. This slight downtick in score also led to normalization of the average overbought/oversold (OBOS) reading for the precious metals group, which climbed as high as 199% on August 6 before dropping to current levels at 71%, potentially providing a more opportune entry point for those looking to gain exposure to the space.

The continued strength of precious metals has led to further improvement from the broader commodities group, which is nearing the sought after 3.00 score threshold with an average score of 2.87. In looking at the score history of this group, we can see that commodities have had difficulty remaining above an average score of 3.00 since 2011. The group saw two occasions since that time where the score did move above 3.00, in July of 2016 and May of 2018, however, the group was unable to maintain a score above 3.00 for more than a couple of days in each instance. While we will see if this recent rise in score plays out differently, the near-term strength demonstrated by various areas within the commodities space certainly paints a positive picture for further improvement.

One of the other areas within commodities that have shown recent progress is agriculture. While this space has yet to move into favorable score territory with an average score of 2.11, we can see through the Group Score Report page that this group is the second most improved group on the entire ACGS page over the past 30 days, moving higher by 0.71 score points (through 8/20). Agriculture has some work left to do in order to reach its year-to-date score high of 2.45 and will be a place to monitor for more upside that has the potential to push the broader commodities space higher.  

Daily Option Ideas for August 20, 2020