Bull Market Remains in Tact

Bull Market Remains in Tact

Posted on March 23, 2015

Canterbury Portfolio Thermostat

Weekly Update 3/23/2015

Market State 1 (1Trading Day): Long-term (Bullish) Short-term (Bullish). Last week’s market advance provided the needed momentum to improve the Portfolio Thermostat’s Market State from 2 to Market State 1.  Market State 1 is the most positive of the Portfolio Thermostat’s 12 Market States.


The Current Macro - Market State™ (calculated on the S&P 500)


To better understand Market State 1 we must first clearly understand what typically occurs to cause an upgrade from Market State 2 into Market State 1. An upgrade to Market State 1 will     be preceded by an advance in the S&P 500 index. The upward momentum, required for the upgrade, will “burn up” a portion of short term buying power (demand). As a result, the first stage of Market State 1 will typically be marked by a slight pull-back or a sideways/sluggish period.


The Portfolio Thermostat identifies 12 different market environments called “Market States.” Each Market State has its own unique characteristics and tendencies.


The Macro- Market States are used to provide a “big picture” view of the characteristics of the current equity markets. The S&P 500 is commonly referred to as “the market.” There are 5 Bullish (rational – low volatility) Market States; 4 Bearish (volatile and/or increasing volatility) Market States; 3 Transitional Market States (indicating caution).


Canterbury Volatility Index™ (CVI): CVI 67 - The CVI increased 1 point for the week (insignificant). Volatility remains stable.

A volatility reading of CVI 75 or lower is considered to be a safe zone (Bullish).

Canterbury Overbought/Oversold indicator finished the week at 77% Oversold (90% oversold or higher is Bullish). The market has been at the “extreme” 99% Oversold position for the previous two weeks. Last week’s market rally was responsible for moving this indicator to a “slightly” Oversold 77% level, as of last Friday (Bullish). 

When will the Bull market end?

Watch for 3 key “early” indications of a pending shift from a Bull market to a Transitional or Bearish market environment:

1)    The Canterbury Volatility Index (CVI) will begin to increase and volatility will move above CVI 90. The CVI volatility will also typically begin to “spike” higher, over short intervals, and do so with increasing frequency. It is normal for the market to continue to establish new highs even though volatility is increasing.

Currently: Volatility is in the “safe zone” and is not spiking higher (Bullish)


2)    The stocks only advance/decline line -The A/D line is calculated by calculating the difference between the advancing versus the declining stocks for each day.


Investopedia - Advance/Decline line: This indicator is used to confirm the strength of a current trend. If the markets are up but the A/D line is sloping downwards, it's usually a sign that the markets are losing their breadth and may be setting up to head in the other direction (this would be Bearish). If the slope of the A/D line is up and the market is trending upward then the market is said to be healthy (Bullish).


Currently: The stocks only A/D line is putting in new highs ahead of the S&P 500. This is reflective of strong market breadth. Bear markets do not begin when the breadth of the advance is strong (Bullish).


3)    An early sign of the end of an aging bull market is when the Dow begins to outperform the S&P 500 and the S&P 500 will outperform the NASDAQ 100 over a period of several months. A strong Bull market will have the smaller capitalized stocks leading the large cap stocks (please read the Weekly Update from 3/3/15 for a better description).


Currently: The Russell 2000 is substantially outperforming the S&P 500. This was not the case for most of last year. The strong leadership from the mid and small cap stocks and in addition, growth is out performing value are all reflective of a healthy market (Bullish).

Please see the S&P 500 and Russell 2000 charts below:

Bottom Line: The Portfolio Thermostat will only own Exchange Traded Funds (ETFs) that are in Bullish - Security States. Any ETF holding that shifts to “Sell” rating will be sold on the following day. The cash received will be used to purchase the highest ranked ETF replacement drawn from our universe of around 130 ETFs. In other words, the Portfolio Thermostat’s ETF holdings will shift and rotate to move in concert with the ever-changing market environments. 


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.