Welcome to this week’s publication of the Market’s Compass Developed Markets Country (DMC) ETF Study #590. It highlights the technical changes of the 21 DM Country ETFs that I track on a weekly basis and publish every third week. There are three ETF Studies that include the Market’s Compass US Index and Sector (USIS) ETF Study, the Developed Markets Country (DMC) ETF Study and the Emerging Markets Country (EMC) ETF Study. The three Studies are normally published every three weeks and are sent to my paid Substack subscriber’s email. A total of 71 ETFs are covered in the three Studies. There is also a Weekly publication that is sent to paid subscribers every Sunday titled The Market’s Compass Crypto Sweet Sixteen Study that tracks the technical condition of sixteen of the larger cap Cryptocurrencies.
To understand the methodology used in constructing the objective DM Country ETF Individual Technical Rankings visit the mc’s technical indicators page at www.themarketscompass.com and select “dm country etfs”. What follows is a Cliff Notes version* of the full explanation…
*The technical ranking system is a quantitative approach that utilizes multiple technical considerations that include but are not limited to trend, momentum, measurements of accumulation/distribution and relative strength of each individual DM Country ETF that can range between 0 and 50.
After reaching a swing low for the week ending March 27th the Total DM Technical Ranking rose three weeks in a row, ending last week with a 4.95% rise to 795.5 from the week before 19.37% jump to 758 and from the 42.54% spike higher to 635 from the recent low of 445.5 at the end of March.
As of Friday’s close, eleven ETF TRs gained ground on a weekly basis, two were unchanged and eight fell. Seventeen ended the week in the “green zone” (TRs between 35 and 50) and four ending the week in the “blue zone” (from 15.5 to 34.5) For the second week in a row there were no TRs in the “red zone” (from 0 to 15). Two weeks ago, there were fourteen ETF TRs in the “green zone” and there were seven TRs in the “blue zone”. The average TR gain for the week was +1.79 vs. the previous week’s average TR gain of +5.85.
The Relative Rotation Graph, commonly referred to as RRGs were developed in 2004-2005 by Julius de Kempenaer. These charts are a unique visualization tool for relative strength analysis. Chartists can use RRGs to analyze the relative strength trends of several securities against a common benchmark, (in this case the URTH) and against each other over any given time period (in the case below, daily) over the past three weeks. The power of RRG is its ability to plot relative performance on one graph and show true rotation. All RRGs charts use four quadrants to define the four phases of a relative trend. The Optuma RRG charts uses, from Leading (in green) to Weakening (in yellow) to Lagging (in pink) to Improving (in blue) and back to Leading (in green). True rotations can be seen as securities move from one quadrant to the other over time. This is only a brief explanation of how to interpret RRG charts. To learn more, see the post scripts and links at the end of this Blog.
Not all 21 ETFs are plotted in this RRG Chart. I have done this for clarity purposes. Those which I believe are of higher technical interest remain.
The Global X FTSE Norway 30 ETF (NORW) had been waffling in between the Leading Quadrant and the Weakening Quadrant three weeks ago, until it fell sharply losing Relative Strength Momentum last week (note the distance between the daily nodes). The iShares MSCI Israel Index Fund ETF (EIS) has made a three Quadrant turn around. After falling through the Weakening Quadrant from the Leading Quadrant, it passed into the Lagging Quadrant until last week when it rose into the Improving Quadrant. The iShares MSCI Austria Index Fund ETF (EWO) has, despite a slight loss of Relative Strength Momentum, reached the best Relative Strength at weeks end, at 103.35 vs. the URTH climbing steadily for three weeks (see the Tabulation Table below).
The Relative Strength and Relative Strength “Tabulation Table” begins with the readings at the end of last week followed by the trailing three weeks that includes the Readings from the last Study. If there has been an improvement in either the Relative Strength Ratio or the Relative Strength Momentum reading on a week-over-week basis I have highlighted it in green. If there has been a contraction in either, it is highlighted in red and an unchanged reading in either will remain in black. The color-coding system serves as a heat map over the past four Friday’s readings highlighting either the continued improvement, deterioration, or stasis vs. the benchmark, the URTH. The ETFs that are displayed on the RRG chart above have the Symbol and ETF Short Name highlighted in blue below.
*To understand the construction the of The Technical Condition Factors or TCFs visit the mc’s technical indicators page at www.themarketscompass.com and select “dm country etfs”. For those who unfamililar a shortened version* is explained below…
*The Technical Condition Factors are utilized in the calculation of the Individual DM Country ETF Technical Rankings. What is shown in the excel panel below is the total TCFs of all twenty-one TRs. A few TCFs carry more weight than the others, such as the Weekly Trend Factor and the Weekly Momentum Factor in compiling each individual TR of each of the twenty-one ETFs. Also, the TCFs number of inputs vary. Because of that, the excel sheet below calculates each factor’s weekly reading as a percentage of the possible total which normalizes the inputs. The basic explanation is that the eight TCFs can range between 0% and 100%.
The Daily Momentum Technical Condition Factor (“DMTCF”) rose from an oversold reading (5.84) five weeks ago, to an overbought reading of 88.31% or 136 two weeks ago till it pulled back last week.
As a confirmation tool, if all eight TCFs improve on a week over week basis, more of the 21 ETFs are improving internally on a technical basis, confirming a broader market move higher (think of an advance/decline calculation). Conversely, if more of the 21 TCFs fall on a week over week basis, more of the ETFs are deteriorating on a technical basis confirming the broader market move lower. On a week-over-week basis five TCFs rose, one was unchanged and two fell.
An explanation of The Total DM Technical Ranking Indicator and the technical interpretation of it, visit the MC’s Technical Indicators page at www.themarketscompass.com.
It is simply a confirmation/divergence indicator as well as an overbought/oversold indicator.
As previously mentioned, the DM Total ETF Ranking or “DMTER” fell precipitously to a reading of 445.5 at the end of March. It has improved dramatically by rising to 795.50 in concert with a price rally to end last week at an all-time weekly closing high (195.70). Since its creation I have smoothed the volatile indicator with a 13-Week Moving Average (red line). Yet, that Moving Average has not reacted to the sharp bounce in the underlying “DMTER”. I am now marking first support at the March 20th weekly closing low at 175.42 as key first price support. More on the longer-term technical condition in the Weekly Candlestick chart that follows and as will be seen it will be hard to argue with the impulsive price advance over the past three weeks.
The Weekly Average DM Technical Ranking (“ATR”) in the bottom panel, is the average of the individual Technical Rankings of the 21 Developed Markets Country ETFs I track. Like the TER, it is a confirmation/divergence or overbought/oversold indicator.
Despite a minor violation in the final days of March the iShares MSCI World ETF or URTH for all intents and purposes held support at the Lower Parallel (solid gold line) of the long-standing Standard Pitchfork. What followed was an impulsive three-week rally that drove prices through the Median Line (gold dotted line) of the Pitchfork into the upper confines Pitchfork and onto new weekly closing highs. The URTH had reached a short-term deeply oversold condition as witnessed by the sharp turn from the extreme lows in the 8-Week Stochastic Momentum Index (middle panel) which help fuel the accelerate the move higher in price. Longer-term MACD (top oscillator panel) also has turned before probing negative territory and is one good week from crossing back above its signal line. The DM Average Technical Ranking turned higher before reaching a one year low. These long-term technical features suggest a significant price low was reached three weeks ago and that the three-week rally is certainly more than just a temporary relief rally that I suggested could unfold in the last DM ETF Study at the end of March.
*From Friday April 10th to Friday April 17th
Nineteen of the Developed Markets Country ETFs I track in these pages were up on an absolute basis and only two were down over the past week. Only two of the ETFs outpaced the +3.93% gain in the iShares MSCI World ETF or URTH last week and nineteen underperformed, that was vs. the week before when twelve outperformed and nine underperformed the URTH. The five-day average absolute price change was +2.07%, adding to the previous week’s average price gain of +4.40%.
On the Wednesday following my last DM ETF Study published on March 30th where I suggested that “only a rally that can escape the downtrend and trade through the falling trendline (gold dotted line) and price resistance at 182.20 would it suggest that the current correction may have run its course in the URTH”, the ETF did so. After a brief price consolidation, prices gapped higher a week later through the “twist” in the Cloud and last Wednesday the URTH closed at a new high before last Friday’s gap higher closed another new high at 195.79. The impulsive 12-day rally drove the 8-day Stochastic Momentum Index to overbought territory, and it has just edged below its signal line. MACD also rocketed higher out of oversold territory through its signal line into positive territory but the current spread between the oscillator and its signal line has reached an extreme. The DM Country ETF Daily Momentum / Breadth Oscillator (bottom panel) reached its peak in overbought territory a week ago last Thursday and has rolled over though its 9-day SMA (red line) hinting that momentum and breadth is waning. The short-term condition of all three momentum oscillators suggests a price pullback is in the cards but the vigor with which prices rose does not portend a deep backing and filling. Key support at 192.84 will be the telltale to that technical thesis.
Charts and price data are courtesy of Optuma. Any time series data including my ETF Technical Rankings can be imported, charted, and back tested in Optuma.
The following links are an introduction and an in-depth tutorial on RRG Charts…
https://www.optuma.com/videos/introduction-to-rrg/
https://www.optuma.com/videos/optuma-webinar-2-rrgs/
