Has The Market Lost Its Mojo?

 |  Includes: BND, BWX, DBC, GLD, RWX, SHY, VEA, VNQ, VTI, VWO
by: Lowell Herr

Growth in the major markets is definitely showing slower growth as demonstrated in the following analysis. Markets are defined as U.S. Equities (NYSEARCA:VTI), Developed International Markets (NYSEARCA:VEA), Emerging Markets (NYSEARCA:VWO), U.S. Real Estate (NYSEARCA:VNQ), International Real Estate (NYSEARCA:RWX), Commodities (NYSEARCA:DBC), U.S. Bonds (NYSEARCA:BND), International Bonds (NYSEARCA:BWX), and Precious Metals (NYSEARCA:GLD). While other indexes might serve to represent broad markets, the above ETFs are used when I construct portfolios to cover the world markets.

The ranking process takes three calculations into account. 1) The price change over the recent three months (91 days). 2) The price change over the recent six months (182 days). 3) Volatility of security. A 50% weight is assigned to the most recent 91 days, 30% to the 182-day period and 20% to volatility. Several Exponential Moving Averages (EMAs) including the "Golden Cross" are calculated. The X/O column is that calculation and it indicates the relative position of the 13-Day EMA compared to the 49-Day EMA.

To conclude the major markets are showing in growth, concentrate on the far right column titled, "Acceleration Absolute." What this column tells us is the normalized growth rate of the most recent 91 days relative to the growth rate over the most recent 182 days. The value is positive when the normalized growth rate is greater for the recent period vs. the longer six-month period.

December 24, 2013 Results: The following table examines the condition of the markets as of 12/24/2013. Note that all market ETFs are negative, a strong indication the market is weakening. However, to seal the point one needs to compare the results with a past period such as three weeks ago. While the ranking does not change over the three period, the growth rates change dramatically. For example, VWO moves from a positive 22.5% three weeks ago to a current -18.0%. VTI changes from a positive 11.3% to -1.1%.

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December 3, 2013 Results: The following table examines the condition of the markets three weeks ago. Note that all market ETFs were positive with exception of commodities and precious metals. If the growth rate of these markets is increasing, then the values will be even higher when we examine the conditions on 12/24/2013. As you can see from the above table, this is not the case. DBC and GLD are exceptions as they are not as negative now as they were three weeks ago. Otherwise, the major markets, as represented by the index ETFs, conclude the major world markets are losing their "mojo."

U.S. Treasury (NYSEARCA:SHY) is included in the list of market ETFs as it serves as a cutoff ETF. To reduce portfolio risk ETFs that rank below SHY are considered underperformers and are sold out of the portfolio when this condition occurs. A second risk reducer is to sell ETFs that are priced below their 195-Day EMA. DBC, VWO, VNQ, and GLD fail both of these requirements to remain in the portfolio and would be sold were this an operating portfolio.

Disclosure: I am long VTI, VEA, VNQ, RWX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.