International Stocks are off the Mat and Swinging

International Stocks are off the Mat and Swinging

Posted on April 27, 2015

Canterbury Portfolio Thermostat™
Weekly Update


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).


Market State 2 (MS 2 in place over the last 23 trading days): Long-term (Bullish) Short-term (Neutral).


Market State™ (calculated on the S&P 500). Current Macro Environment for Equities.


Canterbury Volatility Index (CVI): CVI 58 - The CVI decreased 3 points last week (declining volatility). The CVI volatility continues to decline (Bullish). Friday’s CVI 58 marks the lowest level of volatility for 2015.


As a point of reference, a CVI of 75, or lower, is considered to be a “safe zone.” Canterbury has performed numerous studies on the impact of volatility on markets and securities. Our studies have provided evidence showing that low and decreasing volatility is a primary characteristic of a Bullish market environment.


The Overbought/Oversold indicator finished the week at 60% Overbought (short-term Neutral). Last week was a strong one for most major market indexes. The S&P 500 was up 1.76% for the week while the NASDAQ ended up even stronger, up a whopping +3.25%.


One would expect the market to be nearing an overbought condition following such a week. Surprisingly, that was not the case. The Overbought condition only increased 7 points (53% to 60% Overbought). This is another positive indication for the near term market.


Market Comment:

The NASDAQ broke out of its trading range on Friday to register a new high. The NASDAQ’s relative strength has now improved enough to move ahead of the S&P 500 which is now Bullish for the overall equity markets.


The S&P 500 has been locked into a trading range for most of 2015. A clean break above the (S&P 500) 2118 to 2120 areas could produce the much needed momentum to begin the next leg up. A repeat of the past failures to break out of the resistance at 2120 followed by another decline, to the lower end of the trading range, is obviously possible but is most likely not to happen. The breadth of the percentage of stocks going up each day versus down continues to be positive (rising tide lifting most ships).


The Resurgence in International Stocks

The newly found strength in the international equity markets has caught many by surprise. The current leader on the Portfolio Thermostat’s “Style and Market Index Group” is MSCI Small Cap. International ETF (SCZ). SCZ took over the number one spot last Wednesday. Both the MSCI Large and Small Cap International stock index (symbols EFA and SCZ) were among the worst performers from mid-2014 through the end of last year. That began to change in February when the two international indexes began the process of getting off the mat.


The Portfolio Thermostat’s algorithms produce a daily report that lists the Security State rating (from 1 to 12) of each Exchange Traded Fund (ETF) in our universe of over 130 diverse ETFs. The system then ranks all ETFs in order of “risk adjusted” relative strength.


Here is a recap of the recent resurgence in the international equities. The small cap international (SCZ) issued a Buy signal on 3/23/2015 and then shifted to Security State 1 (most Bullish) on 4/6/2015. Large Cap International (EFA) gave a Buy signal on 4/17/2014 and moved to Market State 1 on 4/17/15.


Bottom Line:

Successful investment programs are built by using applied scientific principles founded on defined rules and evidence based results. Any investment management process that allows subjective investment decisions will not produce results that are statistically relevant. In other words, luck and randomness will play a large role in the eventual outcome.


All liquid securities have variable pricing based on the law of supply and demand for the shares. There is no room for subjectivity in the science of portfolio management. Markets are dynamic and ever-changing.

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.