Most S&P Stocks are Bullish, A Rising Tide Lifts all Ships

Most S&P Stocks are Bullish, A Rising Tide Lifts all Ships

Posted on September 17, 2018
Market State 1- Bullish (14 days): The current market environment is positive. The S&P 500 successfully tested its support level at 2873 and closed the week at 2905, just 5 points away from the high. Please see the chart below.

Canterbury Volatility Index (CVI 42): Volatility continues to get lower. (CVI 45 or lower = extreme low). As a general restatement from last week’s comment, market outliers of 1.5% or greater can often occur as a result of extreme low volatility.
Below is a chart of the S&P 500 Advance/Decline Line.  As a reminder, the A/D Line shows the number of stocks advancing versus declining.  The chart below shows the S&P 500 and A/D line both putting in new highs.  This is what is called a Bullish Confirmation.

Source: AIQ

Additionally, if we take a look at the components of the S&P 500 and measure their security environments, we will notice that a majority of S&P stocks are bullish, which is further confirmation to our Bull Market State. Here is a chart showing the percentage of Bullish stocks, Transitional stocks, and Bearish stocks for each sector:

Source: Canterbury Portfolio Analytics
From the above chart, we can see that Basic Materials is the only sector that does not have the highest number of stocks being bullish.  Energy has an equal amount of bullish stocks to bearish stocks (12 bullish and 12 bearish), while the financial sector has a high number of transitional and bearish stocks compared to bullish stocks.  Most sectors, however, have an overwhelming amount of bullish stocks.  Overall, the S&P 500 has 291 Bullish Stocks compared to only 123 Bearish stocks.  This helps confirm the market’s current bullish environment and low risk level.
Canterbury Portfolio Thermostat Metrics
At Canterbury, we want to help investors focus on the important metrics of portfolio management.  These metrics include holding the combination of securities that exhibit the right characteristics to limit risk; maintaining a consistent/low portfolio volatility level (CVI); and balancing securities to create an efficient benefit of diversification for the current market environment.  The idea is that by sustaining these metrics, our portfolio’s risk can be limited to that of a normal bull market correction, which we define as 8-12% from highest peak value. 
The Portfolio Efficiency Score
To help make things easier, Canterbury has combined our internal portfolio metrics (security states, portfolio CVI, Benefit of Diversification) into an all-inclusive “Portfolio Efficiency Score.”  The Efficiency score ranges from 0 to 100.  An Efficiency Score of at least 70 indicates that today, our portfolio is efficient, and that risk should be limited to a normal bull market correction.  A score in the 50-69 range indicates a risky, transitional portfolio.  A Portfolio Efficiency Score below 50 indicates a high-risk portfolio. 
Here is today’s Portfolio Efficiency Score:
Portfolio Efficiency Score: 100 - Efficient

  • This score indicates a low risk, efficient portfolio with an exceptional level of volatility and diversification for today’s market environment.
  • We know that markets are dynamic and ever-changing.As we begin to go from a bullish to transitional or bearish environment, the Portfolio Thermostat is designed to adjusts its holdings and allocations to maintain an efficient portfolio—and keep its portfolio efficiency score above 70.

Bottom Line
The market remains in a bullish environment.  It continues to test the old high and the Advance/Decline shows a Bullish Confirmation.  Additionally, most stocks within the S&P are bullish according to Canterbury’s indicators.  This further confirms the market’s low risk environment.  We want to see the A/D Line put in new highs with the market and many stocks within the market that are also bullish.  This shows that the market’s bullish run is not being lead by a few generals, but rather a rising tide is lifting all ships.  Volatility is at an extreme low, which is efficient but exposed to a higher probability of an outlier day. 
Canterbury will continue to monitor the current low volatility environment.  Additionally, The Canterbury Portfolio Thermostat will continue to monitor its Portfolio Efficiency Score and make the necessary adjustments to maintain low risk and keep you ahead of the curve.

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.