2021 Market Outlook Webinar: The team at Nasdaq Dorsey Wright (NDW) will discuss the outlook for H1 2021 through a technical lens. Leave your emotions behind and join us for an objective look at the markets. Register Here

Topics We Will Cover:

• A review of current market conditions and indicators
• What the current market state could mean for the new year
• Sector opportunities, risks and early movers
• Asset class outlook and allocation considerations

Countries around the world have started to announce reopening plans, sending investors sprawling towards “reopening” stocks in the travel and entertainment sectors (Bloomberg). In particular, airline stocks have rallied on the news. For those looking for broad exposure to airline stocks, the U.S. Global Jets ETF JETS offers exposure to both domestic and international airlines and has an acceptable fund score of 3.83. Its largest holding, American Airlines AAL, will print its fifth consecutive buy signal after today’s market action, which is now testing resistance dating back to June of last year. AAL is a 4 for 5’er having been in a positive trend since November and moving to an RS buy signal versus the market this past Monday. The rally has put AAL into overbought territory with a weekly overbought/oversold reading of 80%, so those looking to initiate new positions may be best served to scale in at current levels. From here, support is offered at $19.

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:

• It was a trying week for the major bullish percent (BP) indicators, as three reversed down into a column of Os. BPALL, BPNYSE, and BPOTC now read 64%, 70%, and 60% in a column of Os, respectively. BPWORLD held steady in a column of Xs, remaining at 58%.
• However, all of the major positive trend (PT) indicators maintained their high field position.
• Furthermore, all of the major HiLo indicators also kept their elevated field position. ALLHILO and NYSEHILO remain in a column of Xs at 98% while OTCHILO remains steady for now in a column of Os at 92%. Keep in mind these use a 10-day moving average.
• Downward pressure got the best of the major ten-week (TW) indicators over the past week, as three reversed down into a column of Os. TWALL, TWNYSE, and TWOTC fell to 72%, 74%, and 72%, respectively. TWWORLD, like its counterpart BPWORLD, held steady in a column of Xs.
• Finally, only one of the major thirty-week indicators fell into a column of Os last week. 30OTC reversed down to 82% while all of the others held steady in a column of Xs, still in high field position. 

There have been a number of notable developments within the DALI rankings over the course of the past week, so we’ll start with the broad asset class rankings. One of the big stories we have continued to watch this year has been the improvement of Commodities after moving into the third position at the end of 2020. So far this year, Commodity has added a net of 82 buy signals, bringing the tally signal count up to 242, now just nine signals away from the second-ranked asset class of International Equity. However, what is perhaps more noteworthy is the fact that the current signal count of 242 for Commodity is the highest reading we’ve seen for this asset in nearly 10 years! The last time the tally count for Commodity was this high was back in the late-2011 time period, which was a period where Crude Oil prices spent a majority of the time in the upper $80’s to lower $100’s. The improvement for Commodity over the past few months has primarily come at the expense of the more defensive asset classes, namely Fixed Income and Cash. As we have seen interest rates rise recently, that has negatively impacted bond prices and has pushed the tally reading for Fixed Income down to 251, which is the lowest reading Fixed Income has seen in nearly 10 years! So, as the Commodity asset class has emerged as a leader in this market, Fixed Income has fallen to multi-year lows in terms of the relative strength picture within DALI. 

The strength in the Commodity market has also spilled over into the commodity-related equities to the extent that the Energy sector is now the number two ranked sector within the DALI sector rankings as Technology has slipped to number three. Technology would still be viewed as a leadership group, however, the move down to number three is the first time the sector has not been ranked within the top two since October 2016. So, while sectors like Energy and Consumer Discretionary have been moving up the ranking, Technology has been weakening. Again, Technology has not fallen out of what we consider to be a leadership position, but it is one that you will want to monitor exposure in for any further deterioration. 

Portfolio View - Major Market ETFs

Additional Comments:

Over the last week of action, the Invesco S&P 500 Equal Weight ETF RSP was the only major market fund to finish in positive territory with a 7-day gain of 0.58%. This upward price action has carried over to today’s trading session where RSP has added a new X at the $138 level, marking a new all-time high for the equal-weight proxy. Furthermore, RSP has given a total of four consecutive buy signals with the last occurring earlier this month at $134, signaling that demand is in control. Despite yesterday’s elevated volatility, RSP posted a daily gain of 0.27% and is now up over 6.7% for the year through 2/23, a year-to-date gain that is outperforming the cap-weighted SPY’s by a margin of 314bps. Although these two funds own the exact same 500 stocks and both sit at all-time highs, the equal-weighting methodology has enabled RSP to take advantage of the high-flying names outside of the large and mega caps stocks that drive the majority of the S&P 500 cap-weighted index. While we haven’t seen those large and mega-cap names such as Amazon AMZN and Apple AAPL deteriorate significantly enough to change their overall technical outlook, we have seen them stall out performance-wise after a stellar 2020 when compared to their small and mid-cap counterparts. From a sector attribution standpoint between RSP and SPY, we find that the major difference in YTD performance between the two funds comes from the consumer discretionary sector which has added 1.21% to RSP’s total return versus adding just 0.24% to that of SPY. The energy sector is another big differentiator as it has accounted for 1.31% of RSP’s total return so far this year while it has only accounted for 0.64% of SPY’s. Additionally, communication services and utilities are the only two sectors that have contributed more to SPY’s total return versus that of RSP. Financials is the highest contributing sector in both SPY and RSP as it has added 1.21% and 1.64%, respectively, on a total return basis. Overall, the weight of the evidence is positive for RSP. Initial support sits at $126, with additional support available at $106. 

SECTOR BULLISH PERCENT CHANGES

Average Level

64.45

chem

INSU

medi

buil

euti

tele

FORE

wall

wast

AERO

OIL

inet

food

busi

LEIS

GAME

soft

drug

heal

auto

OILS

rest

REAL

biom

comp

reta

hous

elec

mach

STEE

TEXT

prec

prot

semi

GUTI

fina

meta

TRAN

BANK

SAVI

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	biom  soft  wall  hous	wast  medi		euti  prot
4	3	2	1	0

The broad international equity space remained relatively steady with the market volatility in domestic equity markets over the past few days, with the iShares MSCI ACWI ex US ETF ACWX actually advancing 0.20% in trading Tuesday.  Emerging markets saw a bit more movement, with EEM reversing down into a column of Os from overbought territory, while the broad developed market representative EFA remained steady in a column of X's. Although international equities have not shown that much movement to the downside, the asset class has shown some weakening in relative strength over the past few days in the DALI asset class breakdown to now only be sitting nine buy signals ahead of commodities. This is not due to the technical deterioration of international equities, but rather the technical improvement from the broader commodities space, as that asset class has picked up 20 buy signals since last Friday alone. Much of this stems from the price appreciation of Crude Oil CL/, which broke a second consecutive double top at $63 in trading Monday. The combination of a cold winter harming domestic crude oil production as well as the continued positive expectations surrounding potential increases in travel has boded well for crude oil, which sits atop the 21 representatives in our Continuous Commodity Matrix rankings.

In order to see which countries may be more or less affected by crude oil prices, we ran correlations on each of the 43 NDW country indices compared with CL/ over a 36-month trailing timeframe ending February 23. The results of these comparisons can be found below, along with some observations.

• Each of the country representatives shows positive correlations to CL/, with an average correlation of 0.6063 and a median of 0.6156.
• Developed markets tend to have more positive correlations than emerging markets.
• Countries found in the top quartile of our RS rankings (as denoted by the BUY rating) that also possess higher than average correlations to crude oil include Australia, Sweden, the Netherlands, Colombia, and Finland.
• Austria and the Czech Republic are two areas in the second quartile of the RS rankings that have each shown RS improvement in recent months and have higher than average correlations to Crude. These could be areas to monitor for further improvement if CL/ continues to rally.

Little has changed in terms of the overall trend in the fixed income market. US Treasury yields have continued to rise and have done so with notable speed. Rising yields have weakened several segments of the fixed income market like investment-grade bonds and Treasuries.   

• The US Treasury 10YR Yield Index TNX reached 1.425% on its default chart almost exactly where it sat one year ago. At the beginning of the month the index at 1.125%, meaning that it has gained about 30 basis points over the last three weeks, which is roughly equal to what it gained over the entire fourth quarter of 2020.
• Further out on the yield curve, the 30-year yield index TYX printed three Xs on its default chart in Wednesday’s trading, reaching 2.275%. TYX is now up about 40 bps for the month.
• The five-year yield index FVX has also risen, but not as rapidly as the either the 10- or 30-year. FVX is up about 15 basis points in February. As a result, the yield curve has steepened.
• The iShares US Core Bond ETF AGG broke a spread triple bottom in last week’s trading and has continued lower since then, printing six additional Os on its default chart. AGG has a weak 1.54 fund score and a negative -3.15 score direction.
• Convertible and high yield bonds continue to lead the fixed income rankings within the Asset Class Group Scores.

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 2/23/2021:

Broad Market Commodities Report

Portfolio View - Commodity Indices

Copper reached its highest level since 2011 this week, climbing over $9,000 per metric ton. The seemingly sustained surge in price for the bellwether industrial metal is attributed to a variety of things, a couple being: expectations for tightening supply as the world continues to reopen after the coronavirus pandemic (especially from China as of late) and bets on increased spending on renewable energy/electric-vehicle infrastructure (of which require large amounts of raw materials). The prior list is certainly not exhaustive, evidenced by the chart of copper (HG/) where investors are seeming to find countless tailwinds for the commodity going forward, pushing the base metal’s YTD return to nearly 19% (as of 2/23).

Dr. Copper’s strength is further highlighted in the copper-gold ratio, which compares the price per pound of copper to the price per troy ounce of gold. The absolute value derived from this simple calculation is irrelevant, but the direction of this relationship can be very useful – just like individual relative strength values are useless in and of themselves until aggregating and plotting their trends over time. The direction of the copper-gold ratio is useful because gold, being one of the most recognized safe-haven assets among investors, tends to perform well during times of economic hardship while copper tends to do quite the opposite, performing best during periods of economic expansion (or at least leading up to such). A rising ratio can thus tell us expectations for global economic health are on the rise, and vice versa. However, perhaps of greater interest, the copper-gold ratio tends to correlate with interest rates over longer periods of time, as shown below. That said, the current dislocation/spread can help us think through a few possible scenarios and even frame several viable scenarios, being – copper cools off, gold rebounds, or interest rates continue sharply higher (all of these could become true in some fashion). It is worth noting that copper is heavily overbought through trading yesterday, posting an OBOS% value north of 150% while gold is relatively oversold with an OBOS% value of -30%, perhaps adding some loose probabilities to the formerly mentioned scenarios.

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 50 relative strength buy signals compared to 41 last week. On the sell side, there were 36 relative strength sell signals compared to 15 last week.

Symbol	Company	Sector	Price	RS vs Market Signal	RS vs Market Column	RS vs Peer Signal	RS vs Peer Column	Tech Attrib
ALK	Alaska Air Group Inc	Cyclical Goods and Services	66.520	Buy	X	Sell	X	4
TFC	Truist Financial Corp	Banks	58.730	Buy	X	Buy	X	5
BOKF	BOK Financial Corporation	Banks	88.250	Buy	X	Sell	X	4
CAT	Caterpillar, Inc.	Industrial Goods & Svcs	220.180	Buy	X	Sell	X	3
TCF	TCF Financial Corporation	Banks	45.980	Buy	X	Buy	X	5
CRS	Carpenter Technology Corporation	Basic Resources	42.470	Buy	X	Sell	X	4
CSWC	Capital Southwest Corporation	Financial Services	21.970	Buy	X	Sell	X	4
CTB	Cooper Tire & Rubber Company	Automobiles	57.860	Buy	X	Buy	X	5
DLX	Deluxe Corporation	Industrial Goods & Svcs	42.000	Buy	X	Buy	X	5
EPR	EPR Properties	Equity REITs	46.510	Buy	X	Sell	X	4
EXP	Eagle Materials, Inc.	Construction	125.180	Buy	X	Sell	X	3
FBNC	First Bancorp North Carolina	Banks	40.820	Buy	X	Buy	X	5
HA	Hawaiian Holdings, Inc.	Cyclical Goods and Services	26.640	Buy	X	Sell	X	4
DIN	DineEquity, Inc.	Cyclical Goods and Services	78.790	Buy	X	Buy	X	4
DISCK	Discovery Communications Inc. 'C'	Media	44.140	Buy	X	Buy	X	5
CDXC	Chromadex Corp.	Media	9.540	Buy	X	Buy	X	5
CSOD	Cornerstone Ondemand	Software	52.850	Buy	X	Sell	X	4
HMST	Homestreet Inc	Banks	44.010	Buy	X	Buy	X	4
JBLU	JetBlue Airways Corporation	Cyclical Goods and Services	19.150	Buy	X	Sell	X	3
MRO	Marathon Oil Corporation	Oil Companies Major	11.160	Buy	X	Buy	X	4
PSEC	Prospect Capital Corporation	Financial Services	7.440	Buy	X	Sell	X	4
PXD	Pioneer Natural Resources	Oil Companies Secondary	145.240	Buy	X	Buy	X	5
PEB	Pebblebrook Hotel Trust	Equity REITs	22.700	Buy	X	Buy	X	5
MPC	Marathon Petroleum Corp.	Oil Companies Major	55.770	Buy	X	Buy	X	5
RAVN	Raven Industries Inc	Industrial Goods & Svcs	40.480	Buy	X	Sell	X	4
RRC	Range Resources Corp	Oil Companies Secondary	10.430	Buy	X	Buy	X	5
VNDA	Vanda Pharmaceuticals Inc.	Pharmaceuticals	18.690	Buy	X	Sell	X	4
VET	Vermilion Energy Inc	Oil Companies Major	6.060	Buy	X	Sell	X	3
VAC	Marriott Vacations Worldwide Corporation	Cyclical Goods and Services	164.690	Buy	X	Sell	X	4
FNHC	FedNat Holding Co	Insurance	7.080	Buy	X	Sell	X	3
FPRX	Five Prime Therapeutics, Inc.	Biotechnology	23.430	Buy	X	Buy	X	5
AAL	American Airlines Group Inc.	Cyclical Goods and Services	20.660	Buy	X	Sell	X	4
BRX	Brixmor Property Group Inc	Equity REITs	20.100	Buy	X	Buy	X	5
TPCO	Tribune Publishing Co	Media	16.990	Buy	X	Buy	X	5
UE	Urban Edge Properties	Equity REITs	16.970	Buy	X	Buy	X	5
XHR	Xenia Hotels and Resorts Inc.	Cyclical Goods and Services	19.490	Buy	X	Sell	X	4
PVAC	Penn Virginia Corp.	Oil Companies Major	14.580	Buy	X	Sell	X	4
ARD	Ardagh Group SA	Industrial Goods & Svcs	24.000	Buy	X	N/A	X	4
EQH	Equitable Holdings Inc	Insurance	29.050	Buy	X	Buy	X	5
GSKY	GreenSky, Inc. Class A	Industrial Goods & Svcs	5.530	Buy	O	Sell	O	3
JBLU.TR	JetBlue Airways Corporation TR	Cyclical Goods and Services	19.150	Buy	X	Sell	X	3
CTB.TR	Cooper Tire & Rubber Company TR	Automobiles	59.134	Buy	X	Buy	X	5
JCI.TR	Johnson Controls International PLC TR	Industrial Goods & Svcs	58.378	Buy	X	Buy	X	5
MRO.TR	Marathon Oil Corporation TR	Oil Companies Major	11.405	Buy	X	Buy	X	5
RRC.TR	Range Resources Corp TR	Oil Companies Secondary	10.526	Buy	X	Buy	X	5
PEB.TR	Pebblebrook Hotel Trust TR	Equity REITs	22.769	Buy	X	Buy	X	5
TWO.TR	Two Harbors Investment Corporation TR	Financial Services	7.703	Buy	X	Buy	X	4
XHR.TR	Xenia Hotels and Resorts Inc. TR	Cyclical Goods and Services	20.019	Buy	X	Sell	X	4
SLQT	SelectQuote Inc	Insurance	29.940	Buy	X	Sell	X	4
AIRO	Airspan Networks Inc.	Communications Technology	14.000	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
CMS	CMS Energy Corporation	Electric Utilities	55.690	Sell	O	Buy	O	1
CVM	Cel-Sci Corp	Biotechnology	18.060	Sell	O	Sell	O	1
DGX	Quest Diagnostics Incorporated	Healthcare Providers	117.490	Sell	O	Sell	O	1
EBIX	ebix.com Inc.	Software	23.200	Sell	O	Buy	O	1
ECL	Ecolab Inc.	Chemicals	211.160	Sell	O	Sell	O	1
EFX	Equifax Inc.	Industrial Goods & Svcs	171.870	Sell	O	Sell	O	1
HSIC	Henry Schein, Inc.	Medical Products	65.620	Sell	O	Sell	O	0
BSQR	BSQUARE Corporation	Software	5.250	Sell	O	Buy	O	2
ISIG	Insignia Systems Inc	Software	7.080	Sell	O	Sell	O	0
MBT	Mobile Telesystems (Russia) ADR	Wireless Communications	8.490	Sell	O	Sell	O	0
PHI	Philippine Long Distance Telephone (Philippines) ADR	Fixed Line Communications	26.780	Sell	O	Sell	O	1
LL	Lumber Liquidators Holdings Inc	Construction	25.800	Sell	O	Sell	O	1
LUMO	Lumos Pharma Inc	Biotechnology	14.970	Sell	O	Sell	O	0
QDEL	Quidel Corporation	Medical Products	167.420	Sell	O	Sell	O	0
SGMO	Sangamo Therapeutics Inc.	Biotechnology	12.330	Sell	O	Sell	O	0
SJW	SJW Group	Water Utilities	66.550	Sell	O	Sell	O	1
ONVO	Organovo Holdings, Inc.	Biotechnology	11.300	Sell	O	Sell	O	0
SRNE	Sorrento Therapeutics, Inc.	Biotechnology	11.005	Sell	O	Sell	O	1
GRUB	Grubhub Inc.	Technology Services	65.830	Sell	O	Sell	O	0
BLNK	Blink Charging Co	Automobiles	38.790	Sell	O	Sell	O	1
WPG	Washington Prime Group Inc.	Equity REITs	6.640	Sell	O	Sell	O	0
SUNW	Sunworks Inc.	Industrial Goods & Svcs	11.590	Sell	O	Buy	O	2
SYRS	Syros Pharmaceuticals Inc	Biotechnology	9.180	Sell	O	Sell	O	0
AQUA	Evoqua Water Technologies Corp	Water Utilities	24.570	Sell	O	Buy	O	2
EIX.TR	Edison International TR	Electric Utilities	63.108	Sell	O	Buy	O	1
SVMK	SVMK, Inc.	Technology Services	19.290	Sell	O	Sell	O	1
WMT.TR	Wal-Mart Stores Inc. TR	Retail	139.030	Sell	O	Sell	O	1
MCD.TR	McDonald s Corporation TR	Cyclical Goods and Services	220.711	Sell	O	Buy	O	2
FSLY	Fastly, Inc. Class A	Technology Services	77.910	Sell	O	Sell	O	0
DGX.TR	Quest Diagnostics Incorporated TR	Healthcare Providers	121.294	Sell	O	Sell	O	0
AQUA.TR	Evoqua Water Technologies Corp (TR)	Water Utilities	24.570	Sell	O	Buy	O	2
CONE.TR	CyrusOne Inc TR	Equity REITs	67.627	Sell	O	Sell	O	0
CSR.TR	Centerspace TR	Equity REITs	74.043	Sell	O	Buy	O	1
LI	Li Auto, Inc. Sponsored ADR Class A	Automobiles	26.990	Sell	O	Buy	O	1
CLOV	Clover Health Investments Corp.	Healthcare Providers	10.130	Sell	O	Sell	O	0
TPGY	TPG Pace Beneficial Finance Corporation Class A	Financial Services	21.190	Sell	O	Sell	O	1

Daily Option Ideas for February 24, 2021