A Rising Tide

A Rising Tide

Posted on April 06, 2021
The Nasdaq
The Nasdaq 100 index is mostly represented by technology-related stocks.  Recently, these stocks have been underperforming the broad market on a relative basis, as shown in the chart below.  These stocks have gotten a bounce off of recent lows, and the index is now at about its short-term moving average, which is a positive sign.  There is no telling if this pullback will continue, but technology has seen some recent positive momentum, although is still relatively underperforming the S&P 500.  Ironically, the components of the Nasdaq make up 40% of the S&P 500. In other words, different sectors have been leading the markets, like Financials, industrials, and energy.
Source: AIQ

Advance-Decline Line
Are we seeing a major top forming in the markets? The short answer is no, it does not appear that a major top is forming. Most major bear markets begin when smaller stocks begin to pull back while large stocks continue to press forward.  The chart below shows a positive picture.  Looking at the Advance-Decline Line (Green line- represents the number of stocks advancing versus declining). When you see the AD Line hitting a new high with the markets, it provides a confirmation that a “rising tide is lifting all ships.” Bear markets are often preceded by a continual decline in the AD Line, while the markets advance.
Source: AIQ

Market Comment
We just showed 2 charts discussing the overall strengths in the markets right now.  A point to be made here is that although technology is not currently leading the markets, it is showing some recent strength.  Technology-related stocks make up about 40% of the S&P 500, so any weakness in technology will be reflected in the market’s performance.  Luckily, as shown by the Advance Decline Line, there are other sectors that have been picking up the slack and showing leadership.  These sectors include Financials, Industrials, Real Estate, and Energy.  Since the markets do not appear to be showing a major top (as of right now), we would continue to expect to see rotations in the market’s leadership.  Again, it is best for the market when multiple areas are rising, not just a few larger securities.
On another note, for the last month or so, large cap securities (represented by S&P 500 stocks) have outperformed small cap securities.  That said, small companies have significantly outperformed large stocks so far this year. 
Value stocks have outperformed growth so far this year. Markets leadership typically do not shift overnight and tend require a process. We will continue to monitor for changes in market strength and adjust the portfolio accordingly.
Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

Canterbury Investment Management: Tom Hardin

More About Brandon Bischof

Brandon is directly responsible for managing the Canterbury Analytics Group (CAG). To date, Canterbury Analytics Group has played an important role in advancing portfolio management from a loose art form based on subjectivity and obsolete assumptions to an adaptive process with scientific rules and methods capable of providing evidence based results and statistically relevant value add results.

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.