US ETFs

Objective Technical Ranking System

The Excel spreadsheet below indicates the weekly change in the objective Technical Ranking (“TR”) of each individual ETF. 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. In addition, if an individual TR “can’t “get out of its own way” while the broader market continues to rally it speaks volumes about poor relative strength. A sustained trend change needs to unfold in the TR for it to be actionable.

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 30 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 30 ETFs (or 7 x 30) for a possible range of 0-210 if all 30 ETFs had fulfilled the DMTCF criteria the reading would be 210 or 100%.

Total ETF Technical Ranking Indicator

The Total ETF Technical Ranking (“TER”) Indicator is a total of all 30 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 S&P 500 Index (SPX) continues to rally without a commensurate move or higher move in the TER the continued rally in the SPX Index becomes increasingly in jeopardy. Conversely, if the SPX Index 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 1500 level (all 30 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 SPX Index. 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.