It's the Whole Portfolio - Not the Individual Securities // April 11, 2016

It's the Whole Portfolio - Not the Individual Securities // April 11, 2016

Posted on April 11, 2016
Weekly Update

Market State 8: The Portfolio Thermostat’s Market State indicators read as follows:
Long-Term - Transitional/Bearish; Volatility - Bullish; Short Term - Neutral/Bearish
Currently, the Long Term algorithm has both Bullish and Bearish indicators.

Bullish Trend vs. Bearish Trend

Long-term Bearish Indicators
- The S&P 500 remains in a Bearish downtrend (lower highs and lower lows), with a Death Cross confirmation (which is when the 50-day moving average is below the 200-day moving average) of a Bearish downtrend environment.

Long Term Bullish Indicators – Meanwhile, the Price Phase Indicator recently turned Bullish on Friday (see the arrow in the Expanded View below). The Price Phase Indicator filters out the short-term corrections (or whipsaws). It had previously registered a bull market since the end of 2011 up through August 2015. It turned Bearish that month and has remained so up until now. 

Expanded View

Relative Strength of the S&P 500 vs. NASDAQ 100
Overall, U. S. Equity markets tend to perform better when the NASDAQ 100 is stronger than the S&P 500. If both indexes were performing the same, the chart below would show a straight line. The recent uptick in the line, though, suggests that the improvement in the NASDAQ’s strength vs. the S&P 500 is a sign of the beginning of a longer-term Bullish trend. 

Canterbury Volatility Index (CVI 77 - Bullish): The market’s volatility continues to decline.
As you will recall from past updates, the Portfolio Thermostat’s definition of a “one-day outlier” refers to a daily move greater than 1.5%, either up or down. Periods of high or increasing volatility are more likely to have more “one-day outliers” than periods of low or decreasing volatility. We see this illustrated again in what we’ve seen so far this year.
Volatility, as measured by the CVI, registered 2016’s highest level at CVI 102 on 2/27/16. Of the first 31 trading days of the year, 16 days were “outliers.” During that time, the S&P 500 had a maximum peak-to-trough decline of -10.05% (12/31/16 through 2/11/16). Over the next 36 trading days (up through last Friday), volatility declined and is now signaling a more stable market environment. Of those 36 trading days, only 2 days were outliers and the S&P 500 advanced +12.36%.
The total S&P 500 return year-to-date is a flat 0.84%. So far this year, the market has reflected a great deal of risk and uncertainty (22.41% total round trip move in 3 months or -10.05 down followed by 12.26% back up). 

Short Term - The Portfolio Thermostat’s short-term algorithm is net Bearish, though there is one important short-term indicator that is now Bullish.
OverBought/OverSold Indicator: Surprisingly, the S&P 500’s small decline resulted in an extreme 95% oversold reading (Bullish). A reading of 95 or higher, either overbought or oversold, is considered to be an “extreme” level. The current status indicates that the market is having fewer one-day outliers. 

The market has handed us a mixed bag of Bullish and Bearish indicators, which is typical of a Transitional Market State 8 environment. At this point, the market could turn either way (Bull or Bear). Keep in mind that the bulls and bears are in a tug-of-war over the short term. On the one hand, the Overbought/Oversold Indicator is showing an oversold reading but the S&P 500 is less than 2% off its most recent high. That means that a normal “correction” is about -10% from the peak and can occur at any time and for any reason.

A successful long-term investment program is all about portfolio manaagement. It is not about the individual securities’ gains or losses during unstable market environments. Successful portfolio management is about how the individual securities work together to maintain the stability of the whole and to maintain an efficient risk/reward relationship. Success is about making systematic adjustments based on rules that can provide definitive actions, even when the indicators are mixed and apear to be unclear to the subjective observer.
These are the times when it is important to focus on the objective, which is maintaining portfolio consistancy when the markets themselves are not.
Bottom Line:

Canterbury’s net performance for the above time period was +1.62%. Net returns are calculated at a maximum management fee of 1.5%.
Source for all attached charts AIQ. 


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.