Five Week Win Streak Ends

Five Week Win Streak Ends

Posted on March 28, 2016

Weekly Update

Market State 9 Confirmed Long-Term Bearish Market Environment/Short-Term Bullish: The Market States are determined by a combination of long-term, short-term, and volatility algorithms. Currently, the long-term and volatility algorithms remain bearish, while the short-term indicators turned bullish on March 1st.

The Portfolio Thermostat has been in one of the Transitional/Bearish Market States, now confirmed “Bear” Market State, for the last 149 trading days.

Canterbury Volatility Index (CVI 83 - Neutral): The market’s volatility has been declining over the period of the most recent five-week advance. Declining volatility is a common characteristic of bear market rallies and is considered to be normal.

Overbought/Oversold Indicator (50% Short Term - Neutral): Last week’s sideways action helped work off the Overbought (short-term Bearish) condition that was the result of the recent advance.

A reading of 95 or higher, either overbought or oversold, is considered to be an “extreme” level.


Market Comment:

The S&P 500 finally ended its impressive run of 5 consecutive advancing weeks. The total trough-to-peak advance, which began on the February 11th low, was 13.62%. The rally was primarily led by some of the most beaten down stocks and industries. A lot of the buying power was burned up over a relatively short period, and now the S&P 500 is beginning to enter areas with considerable overhead supply, meaning that a lot of sellers will be looking to get out as the rally fizzles.


The market has yet to show the kind of behavior that would indicate an extended period of improvement from the existing medium-term bearish market environment.

The market has experienced four short-term price swings in the 13% range. Substantial short-term moves, either up or down, of this nature are not typically characteristic of a bull Market State environment.

Interesting Observation: During the 21st century, the S&P 500 has not once experienced a 12% or greater swing (up or down) over a 40-day period while volatility was below CVI 90. The market has now had four such swings in about eight months. Of course, volatility has been above CVI 90 each time. Of the 2 advances and 2 declines that were in the 13% range:

  1. Each lasted between 25 and 32 trading days (a short period for a 13% move).
  2. Each was separated from the next ~13% swing by only a few days.
  3. Each has occurred during a bearish Market State, as reflected by the correspondingly high volatility, which is a primary characteristic of a bearish environment.


Source: AIQ

Bottom Line:

The most likely market move from here should be sideways to down. However, whether the next move is up or down, the Portfolio Thermostat’s ETF holdings are positioned to maintain a stable and efficient Portfolio through the current bearish Market State environment.

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.