This morning PayPal PYPL announced they would allow users to buy and sell cryptocurrency. Not only will users be able to buy and sell cryptocurrencies, but they will also be able to shop and transact with cryptocurrencies by early 2021. There are a few other mainstream fintech companies like Square Inc SQ and Robinhood Markets Inc that allow users to buy and sell cryptocurrencies, but PayPal’s foray into the space is noteworthy given its reach with its 346 million active accounts and $221 billion in payments processed in Q2 of this year (Source: Reuters). PYPL shares rose over 4% and Bitcoin futures rose over 7% on the news. PYPL is a 5 for 5’er and is one box away from reaching a new all-time chart high; earnings are expected on November 2nd. For those interested in exposure to bitcoin in an ETF wrapper, the Bitcoin Investment Trust GBTC has a 4.57 fund score and is up over 60% year-to-date (through 10/20).

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 a change last week. BPOTC ticked higher in a column of Xs to 50% and all others remained steadfast in a column of Xs around midfield territory.
• Similarly, none of the major positive trend (PT) indicators experienced material movement, as each remains just below or at midfield territory. Note PTNYSE is currently in a column of Os yet near 1% of reversing back up into a column of Xs.
• Contrarily, all of the major HiLo indicators continued higher in a column of Xs last week, each sitting at the 86% level now. Note these readings use a 10-day moving average.
• In different fashion, all of the major ten-week (TW) indicators rolled over into a column of Os last week. TWALL and TWNYSE now read 52% in a column of Os while TWOTC and TWWORLD sit at 54% and 48%, respectively.
• None of the major thirty-week indicators saw movement, each remaining above the 65% threshold.      

It has been almost two months since Domestic Equities moved back up to the number one position within the DALI Asset Class rankings, and interestingly enough Domestic Equities is the only asset class to have gained more buy signals since it moved to number one on August 25th.  Domestic Equities has picked up 43 new buy signals while all other asset classes have seen a decline, Commodities leads the way on the downside with -22.  While Small Caps have participated in the rally, especially over the past few months, we have not seen much wavering in the leadership trend of Large Cap Growth over Small Cap Value.

These two style boxes, Large Growth and Small Value, are on polar opposite ends of the spectrum as it relates to the current DALI rankings.  Large Cap growth remains the highest-ranked US style box (out of nine) with a tally signal count of 181 while Small Cap Value is in last place with a count of just 36.  After a bit of a recovery from Small Value in recent months, going from a low reading of 15 buy signals in April to a high of 48 by June.  However, since late August when Domestic Equities took over the number one spot, Small Cap Value has lost the second most signals (6) while Large Cap Growth has gained the most signals (6).  These two style boxes have been important over the year, just at different times, and those respective leadership trends have been prolonged.  For instance, Large Cap Growth has been favored over Small Cap Value for more than 5 years now; however, prior to that Small Cap Value was favored for nearly six years (October 2009 to August 2015) and really Small Cap Value was favored for nearly 13 years outside of about seven months in 2009.

This is all to say that these leadership trends across Growth and Value, and specifically Large Growth and Small Value, can last for extended periods of time.  Small Value began to close the gap back in the summer; however, Large Growth has recently expanded that lead back out.  Both are important styles to monitor, and given the broad strength of US equities, Small Cap names have certainly participated to the upside since the market lows; however, overweighting Large Growth remains the leadership trend. 

Portfolio View - Major Market ETFs

Additional Comments:

Generally speaking, it was a negative week across the board for the ten major market funds covered in this report as nine finished in the red while just one fund, the iShares MSCI Frontier 100 ETF FM, managed to finish in the black with a gain of 0.56%. The Invesco QQQ Trust QQQ lagged the group with a loss of -3.43%, followed by the Invesco S&P 500 Top 50 ETF XLG, down -2.71%. On a year-to-date basis, there are now just four major market funds sitting in positive territory, including the QQQ, the XLG, the SPDR S&P 500 ETF Trust SPY, and the iShares MSCI Emerging Markets ETF EEM. Today, we'll examine the EEM's recent price action and technical health of this emerging market proxy; but first, in the table below, we've provided updated support levels for all major market funds covered in this report.

Recall that in January, EEM printed a multi-year high at $46 before moving to a sell signal in February where it broke a triple bottom at $41.50. Shares of EEM then tumbled more than 33% from its January high, moving as low as $30.50 in March following a series of five consecutive sell signals. Later, in March, EEM returned to a buy signal at $33 and gave a total of four consecutive buy signals before moving to a sell signal in September. With recent market action, EEM returned to a Point & Figure buy signal at $45.50 before moving higher to $46, where the fund is now testing its January high. From current levels, a move to $46.50 would mark a new multi-year high. EEM's positive price action since printing its March lows has caused the fund to strengthen significantly from both an absolute and relative perspective. Currently, EEM has a solid fund score of 4.98 with a strongly positive score direction of 4.27, speaking to the fund's improvement over the last six months. This current score beats the average emerging market equity fund by 0.96 score points, the average non-US fund by 1.52 score points, and the average all global and international fund by 1.47 score points. Additionally, EEM has experienced three months of positive monthly momentum and two months of positive weekly momentum, adding to the fund’s healthy technical picture. With an OBOS% reading of 43%, EEM is actionable at current levels with initial support offered at $42.50. Year-to-date, EEM is up 2.36% and is outperforming its developed market counterpart, the iShares MSCI EAFE ETF EFA, by over 9%, making emerging markets the favored international space at this time.

SECTOR BULLISH PERCENT CHANGES

Average Level

54.36

leis

TRAN

FINA

META

HEAL

INSU

INET

SAVI

PROT

SOFT

HOUS

prec

WALL

RETA

BUSI

BANK

food

game

REAL

COMP

REST

oils

DRUG

BIOM

WAST

EUTI

AUTO

SEMI

MACH

BUIL

oil

GUTI

AERO

medi

tele

FORE

STEE

ELEC

TEXT

CHEM

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
RETA  AUTO  CHEM	game  MACH	EUTI	BANK  prec
4	3	2	1	0

Broad emerging markets have continued to lead most of the relative rankings across the NDW platform as global equity markets have rallied off their COVID-19 lows, which makes sense given their outperformance compared to developed markets. The iShares MSCI Emerging Markets ETF EEM has outpaced the iShares MSCI EAFE ETF EFA over the past 30 days, with respective returns of 3.17% compared to -0.48%, bringing the emerging market fund into the black on the year with a gain of 2.36%, while EFA continues to lag with a loss of -6.65% over the same timeframe. Much of this outperformance has stemmed from the overweight of China and Taiwan within EEM, which combine to make up over 54% of the fund’s allocation. These two countries also rank highly in our country index relative strength comparison, with China ranking fifth out of the 43 countries examined and Taiwan placing a bit higher at second overall. However, the remaining nine spots in the top quartile of these rankings are developed market countries, based on the relative strength rankings through trading Monday.

Denmark has held onto the top position in this matrix since the end of September, although we see that four other countries from the Nordic region are also found in the top quartile. This includes the Netherlands, Sweden, Finland, and Switzerland. Today, we will take a closer look at the recent movement from representative funds from some of these areas as potential places to look towards for continued strengthening in international markets.

The iShares MSCI Netherlands ETF EWN has shown significant strength over the past few months, as the fund moved to break through to a positive trend in May and give its fifth consecutive buy signal earlier this month at $36, before moving to a new all-time high at $37 last week. The 5.22 recent fund score posting of the fund bests the average non-US equity score of 3.47 as well as the average Europe fund of 2.73 and is paired with a strongly positive score direction of 3.44. Weekly momentum also recently flipped positive, which suggests the potential for further upside from here. EWN recently pulled back from its all-time high to a current chart position of $35.50 and is suitable for long-exposure consideration at this time. Initial support may be found at $34, with further support offered at $31.

Another fund that has shown consistent strength is the iShares MSCI Sweden ETF EWD, which also gave its fifth consecutive buy signal earlier this month at $36.50, matching a multi-year high from early-2018. This fund moved back to a positive trend in May and shows a recent fund score of 4.50, which bests the average non-US fund (3.47) and average Europe fund (2.73). The recent improvement of EWD has also been displayed through the positive 2.97 score direction, and the fund still sits at a current chart level of $36.50 in the normalized trading territory. Long exposure may be considered here, with initial support offered at $34.

The final fund we will examine today is the iShares MSCI Finland ETF EFNL, which most recently completed a shakeout pattern with a triple top break at $42 to mark a new multi-year high. This fund has improved significantly off its multi-year low of $25 seen in March, moving back to a positive trend in June before rising to current levels at $42. Similar to the other Nordic representatives, EFNL possesses a favorable fund score of 4.58 and an intensely positive score direction of 3.98, indicative of the fund's drastic score improvement over the past six months. Those looking to add exposure may consider the fund at current levels, with initial support offered at $39.50. Note that EFNL also carries a yield of 3.29%.

The US Treasury 10YR Yield Index TNX gave a third consecutive buy signal in Wednesday’s trading when it broke a spread triple top at 0.80%. This is the highest level the index has reached since June when it hit 0.95%.

The US Treasury 30YR Yield Index TYX also gave a fresh buy signal on Wednesday when it broke a double top at 1.625%. Like TNX, TYX also remains below the levels it reached in June.

As discussed in last Thursday’s report, we recently added the NDW Tactical + Ladders Fixed Income Model LADDERS to our suite of guided models. The model combines the State Street Fixed Income Model SSFIXED.TR with two “ladders” composed of BulletShares target maturity ETFs, one investment-grade CORPLADDER, the other high yield HYLADDER.

Therefore, we thought today would be an opportune time to review how target maturity funds work.

Unlike traditional fixed income ETFs, target maturity ETFs hold individual bonds that each mature or are expected to be called in the same year. As the underlying bonds mature, the cash or cash equivalent holdings of the fund increase and upon the fund reaching maturity the proceeds are distributed to shareholders. Because these funds have a target maturity, they can be used to create a held-to-maturity portfolio to protect against capital losses due to rising interest rates.

As in the LADDERS model, target maturity ETFs can also be used to create laddered portfolios. A laddered portfolio is one with allocations spread across several different maturities, e.g. 20% each to 1 to 5-year maturity bonds. A laddered portfolio provides liquidity and can help minimize interest rate risk. 

Even though the underlying bonds in a target maturity ETF are expected to be held until maturity, they are exchange-traded, and therefore the market value and NAV of the fund will still be affected by interest rate movement. Therefore it is important to understand that ultimately, as the bonds near maturity, the NAV of the fund should move toward the par value of its holdings and the fund will receive par value for its bonds (excepting any potential defaults), which will, in turn, be distributed to the funds’ investors.

It is important to note that the movement of NAV towards the underlying par value does not mean that bonds purchased at a premium will result in a capital loss nor that bonds purchased at a discount will result in a capital gain. This is due to how the amortization of premiums and discounts is handled. If a fund purchases its bonds at a discount to par, the discount is amortized over time and may result in the fund distributing more income than would be expected based on the average weighted coupon. The reverse is true if bonds are purchased at a premium. 

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 10/20/2020:

Broad Market Commodities Report

Portfolio View - Commodity Indices

Natural Gas continues full steam ahead, now just shy of doubling in price since its June low

Natural Gas NG/ futures have almost doubled since posting a low in June of this year around $1.45 per MMBtu (one million British thermal units). Tailwinds for the space include weather induced and economic related supply curve changes, in addition to the upcoming transition of season for many areas given the commodity’s inherent role in fueling power plants.

Pivoting to a few charts, beginning with Natural Gas Continuous (NG/) we note a series of three consecutive buy signals, with the latest propelling the commodity to match its highest chart level since February of 2019. Weekly momentum also recently flipped to positive, joining monthly momentum which has been positive for five months now. Furthermore, despite the sharp gains, NG/ remains within normalized trading levels with an Overbought/Oversold (OBOS) reading of 43%. If fortunate to pick up exposure in June one may be sitting on a gain north of 75% at the moment; however, ETFs offering exposure still possess low fund scores and remain well-below their trend lines. A few things to consider on this divergence are the possibility of negative roll yield (a topic previously explained here) or more simply which contracts the underlying ETFs hold. Also, note some ETFs, like the First Trust Natural Gas ETF FCG, actually hold exchange-listed companies that derive a substantial portion of their revenues from the exploration and production of natural gas (Source: ftportfolios.com). So like other areas of the market, knowing what you own is key along with selective exposure.

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 21 relative strength buy signals compared to 20 last week. On the sell side, there were 17 relative strength sell signals compared to 14 last week.

Symbol	Company	Sector	Price	RS vs Market Signal	RS vs Market Column	RS vs Peer Signal	RS vs Peer Column	Tech Attrib
BLK	BlackRock, Inc.	Financial Services	645.070	Buy	X	Buy	X	5
TPR	Tapestry Inc.	Retail	20.480	Buy	X	Sell	X	4
CTG	Computer Task Group, Incorporated	Software	5.750	Buy	X	Sell	X	3
ENDP	Endo International PLC	Pharmaceuticals	5.800	Buy	X	Buy	X	5
FLEX	Flex Ltd	Industrial Goods & Svcs	14.490	Buy	X	Sell	X	4
COWN	Cowen Inc.	Financial Services	18.960	Buy	X	Buy	X	5
CMRE	Costamare Inc.	Industrial Goods & Svcs	7.380	Buy	X	Buy	X	5
MDRX	Allscripts-Misys Healthcare Solutions, Inc.	Software	10.510	Buy	X	Sell	X	4
R	Ryder System, Inc.	Industrial Goods & Svcs	50.310	Buy	X	Sell	X	4
STRL	Sterling Construction Company Inc	Construction	17.070	Buy	X	Sell	X	4
IOVA	Iovance Biotherapeutics Inc.	Biotechnology	37.860	Buy	X	Sell	X	4
GKOS	Glaukos Corp.	Medical Products	55.850	Buy	X	Sell	X	4
AQUA	Evoqua Water Technologies Corp	Water Utilities	23.260	Buy	X	Buy	X	5
CAT.TR	Caterpillar Inc. TR	Industrial Goods & Svcs	174.127	Buy	X	Sell	X	3
ANDE.TR	The Andersons, Inc. TR	Food and Beverage	24.110	Buy	X	Sell	X	4
APOG.TR	Apogee Enterprises, Inc. TR	Construction	28.014	Buy	X	Sell	X	3
WRK.TR	WestRock Co TR	Basic Resources	42.318	Buy	X	Sell	X	4
LEA.TR	Lear Corporation TR	Automobiles	134.407	Buy	X	Buy	X	4
R.TR	Ryder System, Inc. TR	Industrial Goods & Svcs	53.850	Buy	X	Sell	X	4
AQUA.TR	Evoqua Water Technologies Corp (TR)	Water Utilities	23.260	Buy	X	Buy	X	5
AIRO	Airspan Networks Inc.	Communications Technology	8.530	Buy	O	N/A	O

Symbol	Company	Sector	Price	RS vs Market Signal	RS vs Market Column	RS vs Peer Signal	RS vs Peer Column	Tech Attrib
CGEN	Compugen LTD. (Israel) ADR	Biotechnology	14.670	Sell	O	Buy	O	2
CHCO	City Holding	Financial Services	59.000	Sell	O	Buy	O	1
CNSL	Consolidated Communications Holding, Inc	Fixed Line Communications	5.200	Sell	O	Buy	O	1
GNMK	Genmark Diagnostics Inc	Medical Products	11.410	Sell	O	Sell	O	1
MLR	Miller Industries Inc TN	Industrial Goods & Svcs	29.150	Sell	O	Buy	O	2
PSB	PS Business Parks, Inc.	Equity REITs	115.590	Sell	O	Buy	O	1
PBYI	Puma Biotechnology Inc	Biotechnology	9.450	Sell	O	Sell	O	0
VRTX	Vertex Pharmaceuticals Incorporated	Biotechnology	214.540	Sell	O	Buy	O	1
WIFI	Boingo Wireless Inc	Technology Services	9.460	Sell	O	Sell	O	0
OUT	Outfront Media Inc.	Media	13.800	Sell	O	Buy	O	1
BCLI	Brainstorm Cell Therapeutics	Biotechnology	10.150	Sell	O	Sell	O	0
ADAP	Adaptimmune Therapeutics PLC	Healthcare	5.390	Sell	O	Sell	O	0
CLDR	Cloudera, Inc.	Software	10.310	Sell	O	Buy	O	2
MESO	Mesoblast Limited Sponsored ADR	Biotechnology	11.870	Sell	O	Sell	O	0
CME.TR	CME Group, Inc. TR	Financial Services	168.571	Sell	O	Buy	O	1
ADC.TR	Agree Realty Corporation TR	Equity REITs	66.944	Sell	O	Buy	O	1
WRI.TR	Weingarten Realty Investors TR	Equity REITs	16.619	Sell	O	Sell	O	0

Daily Option Ideas for October 21, 2020