All Bubbles Pop-China

All Bubbles Pop-China

Posted on July 13, 2015

Canterbury Weekly Update


Market State 2 (9 Days): Long term Bullish – Short Term –Bullish/Neutral

Canterbury Volatility Index (CVI)*: CVI 58 – The CVI volatility was up another 4 points last week. This years lowest CVI reading was on June 26th at CVI 49. Although volatility has increased almost 20% over the last couple weeks, the CVI remains in the “safe zone.”

One of our Canterbury studies covered every trading day on the Dow going back to July of 1929. The study provided evidence showing that a market decline of more than 10% (a normal “bull market correction”) is highly unlikely when the CVI is at 75 or lower.

The Overbought/Oversold indicator is at 61% Oversold (short term neutral). For reference, 95% Oversold or higher would be considered an extreme level (bullish).

Market Update:

There were some after-shock tremors following the 350 point Dow decline on June 29th. Last week the S&P 500 closed almost exactly where it began at 2076. The S&P tested the low end of its five month trading range on Wednesday and Thursday. Both days closed just a fraction below the 200 day moving average at 2055. Friday’s S&P 500 rally, to 2076, makes the support in the 2050 to 2040 area even more significant. This means that a clean break below 2040 would likely trigger more selling.

At this point, there is little evidence to show that there will be a meaningful change in the existing trading range environment. Over the short term, the S&P resistance is at 2100, which is where the 50 and 100 day moving averages converge.

A side note:

The Chinese are learning the same lesson as Russia. Government can control a lot of things but the markets can see through political posturing and government attempts to control pricing. I heard on CNBC that the recent plunge in the Chinese stock market has lost more capitalization than the equivalent of the total Greek economy times 15. Thus far, the Greek crisis has been nothing more than market noise, as predicted.

Bottom Line:

Short term news drives short term market noise. A bull market environment, is typically limited to the normal 10% correction, as discussed many times in past Weekly Updates. These “systemic” bull market corrections are part of the cost of liquidity and cannot be diversified away.

The Portfolio Thermostat model is designed to only hold ETFs that are in bullish - Security States. The Portfolio Thermostat’s algorithms are programmed to upgrade any ETF holding that fails to adjust and benefit from the prevailing macro market environment. The goal of the Portfolio Thermostat is to maintain a stable and efficient portfolio by keeping the portfolio in a bull-Market State at all times.

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.

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.