Bull Markets Go Sideways More Than They Go Up

Bull Markets Go Sideways More Than They Go Up

Posted on June 29, 2015

Weekly Update


Market State 1 (7 trading days) Long term: Bullish - Short term: Bullish. Last week I said that the Portfolio Thermostat’s indicators had just shifted to Market State 1 but…“The market is at the upper end of its trading range (extended).

Currently, the indicators are just a tick, maybe one down day, from shifting back to Market State 2. It is normal for the Market States to shift back and forth between MS 1 and MS 2 during periods of low volatility.

The Canterbury Volatility Index (CVI): CVI 49 - We are in a market environment with extremely low volatility. As a point of reference, only 79 trading days have seen volatility lower than the current CVI 49 since the beginning of the current Bull market in 2009.

The Overbought/Oversold indicator is at 58% Overbought (short term neutral). This compares to 71% Overbought last week (Neutral to slightly over-extended).

Comment on Volatility:

The CVI is calculated on the S&P 500’s trade data. A CVI 75 or lower is considered to be reflective of a rational/low risk market environment for global equities in general.

It is important to note that periods of extremely low volatility are subject to a “one day outlier” of 200 to 300 Dow points. Such moves are normal and typically connected to an event, like the situation in Greece.

Our studies show that most short-term negative events that occur while the US and International indexes are in Bull - Market States 1 and 2 typically do not lead to a change in the market environment. In the event that today does qualify as a declining “outlier,” the Portfolio Thermostat’s Velocity of Volatility indicator will monitor the following days for abnormalities. Our Velocity of Volatility is programed to trigger a shift to Transitional - Market State 6 if volatility characteristics exceed predetermined ranges. In such a case, actions will be taken.

Market Comment:

Most major market indexes declined slightly last week. The S&P 500 was down 0.07% while the NASDAQ and S&P Small Cap – Growth were down just a few points. Small Cap stocks continue to outperform the Large Cap indexes. This is a sign of a healthy bull market.

The S&P 500 and NASDAQ indexes had no follow-through after breaking-out to new highs. Small Cap - Growth stocks are holding above support, after breaking out of the trading range.

S&P 500 Index

NASDAQ 100 Index

S&P Small Cap Growth

Currently, Healthcare is dominating the top of the Portfolio Thermostat’s “Volatility Weighted Relative Strength” rankings. The Healthcare sector ETF continues to be the strongest of the 9 S&P sectors, with Pharmaceuticals and Medical Devices as two of the strongest industries within that sector.

Bottom Line:

Markets spend more time moving in sideways trading ranges than in up-trends. In other words, most of the profits made in financial markets occur over relatively short periods of time and when most investors least expect. Sideways trading ranges are more prominent and require patience.

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.