Large Caps Leading the Markets

Large Caps Leading the Markets

Posted on April 08, 2019
Market State 1 (Bullish) – The US Stock Market, as measured by the S&P 500, remains in a bullish Market Environment.  A bullish Market State is one with the highest probability for compounded returns, through limited risk.
Canterbury Volatility Index 67 Day - (CVI 71)Volatility, as measured by the Canterbury Volatility Index (CVI) remains in stable condition.  Volatility has been between 70-80 since March 12th, experiencing a steady decline.  Shorter-term volatility, as measured by a 10-day CVI, is currently at CVI 48, which is just above “extreme low” volatility.  Shorter-term CVI measures the trend and pace that volatility is heading (up or down; fast or slow).
As previously mentioned, the S&P 500 is currently in Market State 1.  Along with it, the Dow Jones Industrial Average and Nasdaq 100 index are both in Bullish Market States.  The Russell 2000, on the other at hand, is currently in Market State 11 (long-term is negative but could turn positive soon and proceed into a bullish Market State).  Each of these broad indices are composed of some combination of both Value and Growth stocks, either large cap, mid cap, or small cap. 
According to Canterbury’s Market/Security State indicators, only Large Cap Value and Large Cap Growth (as measured by ETFs IVE and IVW), are in bullish Security States.  Mid Cap value and growth, as well as small cap value and growth, are all in Security State 11 (awaiting a change from Long-term negative to long-term positive).  The table below shows the Security State and volatility (CVI) for large, mid, small growth and value, as well as the EAFE and Emerging Markets:
Index (ETF) Security State Volatility (CVI)
Large Cap Value (IVE) 1 70
Large Cap Growth (IVW) 1 77
Mid Cap Value (IJJ) 11 84
Mid Cap Growth (IJK) 11 79
Small Cap Value (IJS) 11 93
Small Cap Growth (IJT) 11 90
EAFE (EFA) 7 61
Emerging Markets (EEM) 5 87

Advance Decline Line
The Advance-Decline Line (A/D Line) measures market breadth.  It measures the number of advancing stocks versus declining stocks.  It is a negative indication when the stock market is putting in new highs while the A/D line is declining.  In that case, that would mean that the few largest stocks are carrying the market, while many smaller stocks are falling off.  On the other hand, if the A/D line is putting in a new high, while the stock market has yet to reach a new high, it is a positive indication as the “troops are leading the generals.” 
Today, the A/D Line continues to show broad market strength.  The previous high on the S&P 500 occurred on September 21st.  This was also at the time a high for the A/D line.  Since then, we can see from the chart below, the A/D Line has been putting in new highs since February 1st, while the S&P 500 has not yet hit a new high (Positive Divergence).  This means that many stocks are participating in the recent rally off the December lows.
Bottom Line
The US Stock market continues to approach its old September all-time high.  Volatility is continuing to decline, and the Advance Decline line is continuing to rise.
Not all investment styles, sectors, or alternatives will be in bullish environments at the same time.  All liquid traded securities, driven by supply and demand, will experience bull and bear markets.  Adapting one’s portfolio to hold securities that benefit from the current market environment is crucial to risk management.  All securities can experience large drawdowns. An Adaptive Portfolio Strategy, like the Canterbury Portfolio Thermostat, has the ability to navigate to the ever-changing market environments by utilizing a diverse universe of securities to select assets that will benefit from the current environment- bull or bear.
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.