Managing Market Whipsaws was Critical in 2014

Managing Market Whipsaws was Critical in 2014

Posted on December 29, 2014

Canterbury Portfolio Thermostat – Weekly Update: 12/29/2014


Market State 2 (4 days) Short term Bullish/Neutral: Last week’s update described the events that caused a shift to Market State 6 (Transitional). The MS 6 environment lasted for only 2 days.


The following is an excerpt from the previous week’s update (on 12/22/14): The Velocity of Volatility indicator produced a volatility alert Friday morning (12/19). The Portfolio Thermostat’s volatility algorithm is now negative, at least temporarily. We are in a rare type of a MS 6 environment in that the volatility that triggered the alert was Positive volatility (a volatile advance). Most volatility alerts come as a result of a sharp short term decline. MS 6 is the most unpredictable of the 12 Market States.


The Canterbury Volatility Index (CVI) closed at CVI 67 (bullish). Volatility declined by 3 point from the previous week’s reading at CVI 70. The slight decline in the CVI was all it took to shift the Portfolio Thermostat’s algorithms back to bullish. It is very rare to get a volatility warning when the CVI is at 75 or below. Please note, a volatility reading of CVI 75 is considered a “safe zone” unless a volatility alert in in affect.

The Overbought/Oversold Oscillator is now 98% overbought (bearish). Quote from Weekly Update from 12/22:“The trend is up so this indicator is likely to get even more overbought through the end of the year.” The Oscillator was 87% overbought on 12/22. A reading of 95% or higher qualifies as an “extreme” level (meaning that the short term advance may have gone up too high and too fast).



The S&P 500 looks like a boomerang.


Bottom Line:

No meaningful changes in the Exchange Traded Funds (ETF) owned in our portfolio. Markets have settled down. There was a lot of drama but little change after all was said and done. The S&P 500 continues to put in new highs but is only up 0.8% from where it was on Thanksgiving.  The key to this year has been not getting on the wrong side of the three whipsaws in the major US equity markets.


Our current holdings continue to have the bullish characteristics as defined by the Portfolio Thermostat’s algorithms. The turn-over in ETFs held in the portfolio have been less than any of the previous three quarters this year.

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.