DM Country ETFs

Objective Technical Ranking System

The Excel spreadsheet below indicates the weekly change in the objective Technical Ranking (“TR”) of each individual 21 DM Country ETFs. The technical ranking or scoring system is an entirely quantitative approach that utilizes multiple technical considerations that include but are not limited to trend, momentum, measurements of accumulation/distribution and relative strength. If an individual ETFs technical condition improves the Technical Ranking (“TR”) rises and conversely if the technical condition continues to deteriorate the “TR” falls. The “TR” of each individual ETF ranges from 0 to 50. The primary take-away from this spread sheet should be the trend of the individual “TRs” either the continued improvement or deterioration, as well as a change in direction. Secondarily a very low ranking can signal an oversold condition and conversely a continued very high number can be viewed as an overbought condition but with due warning, oversold conditions can continue at a pace and overbought securities that have exhibited extraordinary momentum can easily become more overbought. A sustained trend change needs to unfold in the individual TR for it to be actionable.

Relative Rotation Graphs

The Relative Rotation Graphs, commonly referred to as RRGs, were developed in 2004-2005 by Julius de Kempenaer. These charts are a unique visualization tool for relative strength or weakness analysis. Chartists can use RRGs to analyze the relative strength trends of several securities against a common benchmark, (in this case the iShares MSCI World ETF / URTH) and against each other over any given time-period (in the case below, daily for the past two weeks of trading). 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 tracks from Leading (in green) to Weakening (in yellow) to Lagging (in pink) to Improving (in blue) and back to Leading (in green). True rotation can be seen as securities are moving from one quadrant to the other over time. This is only a brief explanation of how to interpret RRG charts.

Technical Condition Factors Calculations

There are eight Technical Condition Factors (“TCFs”) that determine individual TR scores (0-50). Each of these 8 ask objective technical questions (see the spreadsheet posted above). If a technical question is positive an additional point is added to the individual TR. Conversely if the technical question is negative, it receives a “0”. 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 21 ETFs. Because of that, the excel sheet above calculates each factor’s weekly reading as a percentage of the possible total. For example, there are 7 considerations (or questions) in the Daily Momentum Technical Condition Factor (“DMTCF”) of the 21 ETFs (or 7 x 21) for a possible range of 0-147 if all 21 ETFs had fulfilled the DMTCF criteria the reading would be 147 or 100%.

Total DM ETF Technical Ranking Indicator

The Total Technical ETF Ranking (“TER”) Indicator is a total of all 22 ETF rankings and can be looked at as a confirmation/divergence indicator as well as an overbought oversold indicator. As a confirmation/divergence tool: If the broader market as measured by the iShares MSCI World Index ETF (URTH) continues to rally without a commensurate move or higher move in the TER the continued rally in the URTH becomes increasingly in jeopardy. Conversely, if the URTH continues to print lower lows and there is little change or a building improvement in the TER a positive divergence is registered. This is, in a fashion, is akin to a traditional A/D Line. As an overbought/oversold indicator: The closer the TER gets to the 1050 level (all 21 ETFs having a TR of 50) “things can’t get much better technically” and a growing number of individual ETFs have become “stretched” the more of a chance of a pullback in the URTH. On the flip side the closer to an extreme low “things can’t get much worse technically” and a growing number of ETFs are “washed out technically” an oversold rally or measurable low is close to be in place. The 13-week exponential moving average in Red, smooths the volatile TER readings and analytically is a better indicator of trend.