Markets Quickly Discount Events

Markets Quickly Discount Events

Posted on May 23, 2012

Current Market State 2 - 13 days and counting

Canterbury Volatility Index (CVI) = 69 (up 3 points from low) – Rational

Portfolio Thermostat Matrix: Market State 2 – Characteristics

Market State 2: Occurs during a long term Bull Market; Day-to-day volatility is low even though intraday fluctuations may be high; Short term supply and demand indicators are Bearish.

Market State 2 is marked by a short term pullback (correction) during a long term Bull Market. It is common to see days when the Dow Jones Industrial Average advances or declines 100 to 175 points when in Market State 2. Both Market States 1 and 2 will experience a 200 to 250 point “isolated” (not back to back) advance or decline on a “rare day.”

Currently the equity markets are extremely “over-sold.” The markets tend to have a positive bounce when least expected. Market participants are nervous. Typically the securities that have declined the most will have the biggest rebound during the market bounce.

Market State 2 will generally sustain a down-side correction in the range of -4% to -7% from the previous market peak. The previous peak was on May 1, 2012. The largest S&P 500 decline, during the current Market State 2 was -7.87% through bottom on last Friday.

Typical action during Market State 2: Buy the Dip

We have performed tests on the Dow Jones Industrial Average beginning in 1929 and the S&P 500 from 1957 through 2011. Our studies show that, 73% percent of the time, Market State 2 eventually shifts back to Market State 1.

The Canterbury Portfolio Thermostat identifies 12 different Market States (environments). Of the 12 Market States, 6 are Bullish Market States, 4 States are Bearish, and 2 States tend to precede a transition to a Bearish Market State, meaning caution.

Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom Hardin, Chartered Market Technician (CMT), makes all the final decisions on all investment and portfolio management decisions for Canterbury Investment Management. Tom has more than 30 years experience in the investment management industry and has broad breadth of knowledge. He is known as an innovator, educator and been revolutionary in the advancements in portfolio and risk management.

Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.