Market Rebounded from Oversold Position

Market Rebounded from Oversold Position

Posted on July 09, 2018

Market State 2- Bullish (38 days):  The overall market, as measured using the S&P 500 index, remains in Market State 2.  Canterbury has identified 12 independent Market States.  Market State 2 is the second most bullish Market State, meaning risk levels are limited. 

CVI 61: The Canterbury Volatility Index (CVI) continues to decrease, in a rational fashion.  Low or decreasing CVI is a bullish characteristic, meaning we can expect risk to be within the range of a normal bull market correction (about -10% from the previous highest peak in value). Canterbury’s studies show that Bear markets do not occur when the CVI volatility is near the current low levels. 

I hope that everyone had a great 4th of July week and took the opportunity to spend quality time with your friends and family. 

Going into last week, the market was oversold, falling off its most recent minor peak by -3.13%.  Since then, the market has bounced off this low point and is no longer oversold. The market is approaching minor resistance levels in the 2785 area.  Look at the chart below:

Source: AIQ
We can see the S&P declined in the last few weeks and built minor support around the 2700 level. The 2700 level is higher than the previous lows of 2690 on May 29th and 2630 on May3rd. A characteristic of a bull market is a pattern of higher highs and higher lows. Expect the current advancing market to run into some resistance at around the 2785 area. This is the old high dating back to mid-March.  A break above the 2785, on strong volume, would be an additional confirmation that the bull market continues.

Growth vs. Value

Growth stocks continue to lead value stocks.  Canterbury ranks securities or asset classes using the Canterbury’s Volatility Weighted Relative Strength indicator (VWRS).  The VWRS indicator ranks the Portfolio Thermostat’s universe of ETFs from the weakest to the strongest.

Here are the rankings for both small-cap, mid-cap, and large-cap growth and value:
Asset Class Rank (VWRS)
Small Cap Growth 1
Large Cap Growth 2
Mid Cap Growth 3
Small Cap Value 4
Large Cap Value 5
Mid Cap Value 6
Advance Decline Line
As we have pointed out several times in the last few weeks, the Advance Decline line (the number of stocks going up verses down) continues to climb. The A/D line just put in a new high last Friday.  Since the S&P has not put in a new high, this is called a positive divergence and is a bullish sign as more stocks are advancing upwards than declining. 

Source: AIQ

Bottom Line:
Markets and weather have a lot in common.  Both will experience periods of stability and periods of volatile fluctuation.  Today’s market environment is bullish. There are several indications of this bull market.  Growth is leading value, the A/D Line continues putting in new highs, and the market is putting in higher short-term lows.  Canterbury monitors the changing market environments on a daily basis. The home thermostat can adapt indoor conditions to navigate external environments. Likewise, Canterbury’s Portfolio Thermostat is designed to maintain stability within your portfolio regardless of the market environment - whether it is 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.