Crude oil prices have been extremely volatile in recent weeks with prices quickly fluctuating between the mid 70s and low 60s. Oil demand outlook uncertainty remains the driving force of the volatility as the Delta variant poses risks to demand while limited U.S. production and inflation fears that stoke the flames for higher prices. With some worries of prices continuing higher, the Energy Department plans to auction off 20 million barrels of crude from its strategic reserves which hold 621 million barrels as of August 13th (Bloomberg). The pullback in crude over the last week has had a major effect on our DALI sector rankings as Energy fell from the second-ranked sector at the end of June to the last ranked sector today. After a swift move lower last week, crude oil rebounded on Monday and Tuesday rallying from $62 to $67 and remains in oversold territory. From its current level, crude has multiple levels of support in the $58 to $62 area. Year-to-date crude oil is up 39.51%.

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 another bumpy week for markets. Beginning with a look at the bullish percent (BP) indicators, we saw BPNYSE reverse back down into Os at 54% and BPWORLD fall lower in Os to 42%.
• In addition, we saw each of the positive trend (PT) readings continue down in a column of Os. PTALL, PTNYSE, PTOTC, and PTWORLD each lost 2% and now sit at 52%, 66%, 46%, and 50%, respectively.
• The major HiLo indicators also fell lower in Os; ALLHILO, NYSEHILO, and OTCHILO now read 46%, 62%, and 38%, respectively.
• However, three of the ten-week (TW) charts reversed back up into Xs. TWALL, TWNYSE, and TWOTC now sit in Xs at 40%, 48%, and 38%, respectively. TWWORLD remains in Os, falling another 2% over the past week to hit 36%.
• Finally, we saw mixed action from our thirty-week indicators. 30ALL and 30NYSE each reversed back up into Xs at 44% and 54%, respectively, while 30OTC and 30WORLD fell lower in Os to 36% and 46%, respectively.

With Tuesday’s action, several of the U.S. Equity indices, such as the S&P 500 Index SPX, Nasdaq Composite NASD, and Russell 1000 Index RUI, moved back to new all-time highs on their charts. In fact, as of the time of this writing SPX and NASD have bettered their Tuesday highs within intraday action on Wednesday. This comes after pretty much all the U.S. Equity indices experienced a negative week for the first time in roughly a month, and the rally has been driven by strong moves over the early trading days this week. On the chart of the S&P 500 Index, the first two days’ worth of action this week has led to the chart moving above the $4490 level, which return the chart to a buy signal and counted for the 50th all-time closing high for the index this year. As noted above, it appears SPX is poised for adding number 51 with Wednesday’s action.

With the rally we’ve seen over the past few trading days, we were curious as to what stocks have been driving the performance of the S&P 500 since the beginning of the third quarter and this month as well. In the tables below, we have shown the top 15 stocks that have contributed to the indexs return over the aforementioned time periods. There is overlap for both time periods as the following stocks each fall within the top 15 on both time periods: Microsoft MSFT, Apple AAPL, Alphabet GOOGL/GOOG, Pfizer PFE, Facebook FB, Nvidia NVDA, Danaher DHR, Adobe ADBE, and Tesla TSLA. As we can observe, Technology is the overarching sector theme when looking at the stocks in the tables. Financials – mainly banks – also appear in the monthly table, while a few Healthcare stocks appear as big contributors when looking at Q3 performance. In some cases, the weight of the stock is a large factor in why a particular stock is contributing to the index’s return, and not strictly the performance.

While looking at the big contributors to the S&P 500 can give us an understanding of what may be driving the performance within the index, it isn’t necessarily a way to pick where we may look to allocate our portfolios when considering individual stock positions. Fortunately, we have a tool on the platform that allows us to find the relative leadership within a defined universe – the matrix tool. For matrix subscribers, there is a matrix that contains all the constituents of the S&P 500. Below is a snapshot of the top 15 names in the matrix as of the close on August 24th. There are some names that have contributed significantly to the return of the S&P 500 and rank within the upper echelon in the matrix. Nvidia NVDA is the notable one as it ranks in the top 5 of the matrix and has contributed to the SPX’s return recently. We also find Alphabet GOOG in the top 15 of the rankings of the matrix as well. While the remainder of the stocks shown in the matrix are not contributing as much to the performance to the index as the names above, they are relative leaders in the index and could be considered for individual stock exposure. On average, the top 15 stocks in the matrix below are up 7.48% in the month of August so far which outperforms 11 out of the top 15 top contributors to SPX. Additionally, the top 15 stocks are up 21.22% on average for the third quarter, which outperforms 14 out of the 15 top contributors to SPX’s return. Why are these names not in the tables above? Well, as we noted it is due to their weight within the index. Fortunately, the matrix ignores the stock’s weight in the index and strictly focuses on those names showing positive relative strength. It is the beauty of relative strength and the matrix tool that can help position client portfolios in a manner that we can stack the odds in our favor as we attempt to outperform the index and grow client wealth as well.

Portfolio View - Major Market ETFs

Additional Comments:

It was a mostly positive week of action for the 10 major market ETFs covered in this section of the report as nine finished in the black while just one, the SPDR Dow Jones Industrial Average ETF Trust DIA, finished in the red with a loss of 3bps. The Invesco QQQ Trust QQQ was the outperformer for the week as it gained 2.36%, increasing its year-to-date return to 19.32%. We’ve steadily seen the QQQ improve over the last few months following the rebound in the broader tech sector. Today, the QQQ has pushed even higher to $375 where it has added an X on the chart and is now trading at fresh all-time highs. The QQQ continues to trade on two consecutive buy signals, the last of which occurred in mid-June at $345 and has maintained an overall positive trend since March 2020. Monthly momentum just flipped positive after having spent the prior seven months on the negative side, suggesting the potential for higher prices. The QQQ possesses a solid fund score of 4.68 with a positive score direction of 0.89, speaking to the fund’s technical improvement over the last six months. From current levels, initial support sits at $320 on the default chart, about 14% from where it is trading today, with additional support at $300. If looking for tighter stop loss options to protect any potential gains, we suggest using a more sensitive scale such as the 2 point per box chart which currently offers support at $360 and $354.

While the QQQ is strong from an absolute perspective, we are also seeing it shine from a relative perspective. When looking at a 3.25% Relative Strength Matrix of the 10 major market ETFs shown below, we find the QQQ planted firmly in the top spot with 7 RS buy signals, telling us that it currently possesses the highest RS when compared to the others. You may notice that the QQQ, the RSP, and the IJH are actually tied with 7 buy signals. After sorting by the Buys, we then use the X’s column as our tiebreaker. Currently, both the QQQ and the RSP are tied with 7 buys and 15 X’s so we must go one step further to determine the winner using performance. On the flip-side, we find that our three international representatives make up the basement of the rankings, which aligns with the long-term rankings of the major asset classes in DALI where US equities sit in the #1 positions while international equities are ranked #3.  

By default, the RS Matrix ranks a universe of securities based on the number of RS Buy signals each has in its favor. We have the ability to sort any matrix by its X’s and Total columns. The X’s column gives more of a near-term view of the RS relationships while the Total column (Buys + Xs) provides us with more of an intermediate view. Interestingly enough, the QQQ currently ranks #1 when we sort this matrix by Buys, X’s, and Total telling us that it is the leader in the near-term as well as the long-term. While we see small-caps IJR rank near the top in the #3 spot when sorted by Buys (long-term), we can see its relative weakening when we sort by X’s as it falls to #7 when we sort by X's. In order to see the IJR fall in the long-term, default Buy rankings, we would need to see more RS relationships between the IJR and the other members of the matrix move to RS sell signals such as the one between IJR and DIA. One other thing to note is that we see EFA and EEM at the bottom of the matrix when we sort by Buys as well as X’s, telling us that international equities continue to show relative weakness when compared to US equities in the near term and the long-term. Overall, the QQQ is showing both absolute and relative strength when compared with other major market ETFS, making it a fund to consider in your portfolios. 

SECTOR BULLISH PERCENT CHANGES

Average Level

46.83

auto

chem

oils

stee

LEIS

soft

REST

meta

comp

tele

text

prec

wall

oil

elec

food

MEDI

BUSI

BUIL

WAST

drug

aero

heal

reta

fore

PROT

FINA

INSU

EUTI

SAVI

biom

inet

hous

GAME

semi

mach

TRAN

guti

BANK

real

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

80-84

86-100

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
		SAVI	stee  semi  text  guti	oil  real
4	3	2	1	0

The relative strength picture between developed and emerging markets has remained largely the same over the past week. Emerging markets saw some near-term improvement as many of the large Chinese technology names saw drastic price appreciation at the beginning of this week, leading the broader iShares MSCI Emerging Markets ETF EEM to show an improvement of just under 2.5% over a trailing seven-day timeframe. The iShares MSCI EAFE ETF EFA was about flat over the same timeframe (through 8/24). While the movement in China this week has been dominating most of the international equity news headlines, the broader Chinese equity space has yet to demonstrate notable technical improvement toward favorable positioning. As we touched on in a prior international equity overview, the shares of Chinese companies listed outside of mainland China have seen the sharpest technical deterioration, while the A shares listed on the mainland have held up significantly better. Unfortunately for US investors, it can be very difficult to access mainland Chinese equity listings, or A Shares, outside of broader exposure through an ETF. While many of the individual stocks of Chinese companies that are available on US exchanges saw significant price appreciation earlier this week, most of those names were previously in heavily oversold territory and have not shown significant technical improvement. Out of the 174 Chinese ADRs we track on the NDW platform, only 21% were on a point and figure buy signal following trading Tuesday, and only 13% were in an overall positive trend. Furthermore, the average technical attribute rating for these names arrives at a measly 0.81 points out of the 5 possible points (through 8/24).

The frontier equity space is one area of foreign equity markets that has continued to demonstrate consistent improvement throughout the year. This can be seen through the iShares MSCI Frontier and Select EM ETF FM, which moved to a new multi-year high on its more sensitive ¼ point chart Wednesday with movement to $34.25 after giving four consecutive buy signals since April of this year. The fund has also posted a year-to-date return of 20.07% (through 8/24), outpacing representatives from developed markets (EFA), emerging markets (EEM), broad international equities (ACWX), and even the S&P 500 Index (SPY) over the same timeframe. If this holds through the end of the year, this would mark the first calendar year that FM outpaced all of these representatives since the inception of the fund in 2012.

FM carries a recent fund score posting of 3.83, which bests the average emerging market equity fund at 2.60 as well as the average non-US fund at 2.96. The score is also paired with an intensely positive 2.77 score direction, providing further indication of the fund’s consistent improvement. While the technical picture of FM is stronger than most international equity areas at current levels, those looking to add exposure should note that the fund is entering an overbought territory, so those looking to add exposure may be best served to ease in at current levels or wait for a pullback/normalization of the trading band. Initial support can be found at $32 on the more sensitive ¼ point chart, with additional support offered at $31.50.

• Bond investors will be looking to the Jackson Hole Symposium and Chair Powell’s speech on Friday for further any guidance on when the Fed may begin to taper its asset purchases.
• The US Treasury 10YR Yield Index TNX reversed up sharply on Wednesday, printing five Xs on its default chart and reaching 1.35%. A move to 1.4% would mark a second consecutive buy signal for the index.
• The US Treasury Five-year Yield Index FVX also rose on Wednesday, reaching 0.825% on its chart. This puts the index just one box away from giving a second consecutive buy signal and returning to a positive overall trend.
• Further out on yield curve, the 30YR Yield Index TYX also reversed up, reaching 1.95% on its default chart; it would need to reach 2.05% in order to give a second consecutive buy signal.
• After giving a second consecutive buy signal in last week’s trading, CBUS10YRPREAD, which measures the spread between Treasuries and high yield corporate bonds, reversed down in Tuesday’s trading. At least some of the recent upward movement in high yield spreads can be attributed to the deterioration of the energy sector, which is more heavily represented in many high yield bond indexes than it is in the S&P 500 SPX. As a result, a recovery in crude oil prices and the energy equity sector could help to lower high yield spreads.
• The leadership within the fixed income groups in the Asset Class Group Scores remains largely unchanged over the last week. Convertible bonds, high yield bonds (both corporate and munis), and inflation protection remain areas of strength. The general bond-long group also sits near the top of the rankings, but this may change with the fairly large upward move in yields on Wednesday.  

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 8/24/2021:

Broad Market Commodities Report

Portfolio View - Commodity Indices

With commodity prices searching for near-term direction and the US Dollar continuing to firm up, we will take a sidestep this week and discuss the recent surge in Bitcoin ($BTC).

To begin, a bit of chart history - after reaching a 52-week high in June of 2019 at around 14,000 the crypto posted a series of lower tops and eventually bottomed at around the 4,000 level during the March 2020 pandemic lows. Perhaps this came as a surprise to some given the often-touted uncorrelated benefit of cryptocurrencies, but nonetheless, the price of Bitcoin fell over 50% from its February 2020 high. Furthermore, like other asset prices at the time, Bitcoin quickly recovered and later posted an all-time chart high just over 60,000 in April of 2021 after first returning to a buy signal on March 19th of 2020. However, differing from other risk-on assets, Bitcoin sold off in April of 2021 and retested its support at around 30,000, which appeared/appears to be firm.

Since returning to a buy signal on July 26th, Bitcoin has gained over 25% and is currently approaching its old trading range from April of this year – now sitting about 28% off its all-time chart high (through 8/24).

In addition to Bitcoin’s absolute price recovery, we wanted to highlight an interesting relative strength relationship between the cryptocurrency and cash (MNKMKT). Shown below are two graphs, each comparing a hypothetical portfolio beginning with $100 from different points in time to a generic bitcoin holder. The portfolios are constructed based off of a relative strength signal relationship (at a 5% box size) between $BTC and MNYMKT. (Click here for a refresher on the basics of relative strength investing.) In short, when $BTC was on a relative strength buy signal the portfolio is fully invested in the cryptocurrency and when the relationship gave a sell signal it raised 100% cash – these times are seen by the flat blue lines on the trend chart.

Given the extreme movements of Bitcoin, the tactical decision to raise cash during downturns proved advantageous because it reduced the effect of deep drawdowns on long-term portfolio performance. Essentially, we cut our losing trades short and let our winning trades run. Thought of differently, we sought to maintain a higher principal balance than the crypto itself, so when demand returned, we had a higher balance to compound upside returns with. The strategy was not correct on each signal it gave, nor did we exit at tops or buy during bottoms, but often, the method provided a framework to keep us out of a situation where we needed a 100% return after suffering a 50% loss to breakeven.

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 4 relative strength buy signals compared to 7 last week. On the sell side, there were 35 relative strength sell signals compared to 68 last week.

Daily Option Ideas for August 25, 2021