Canterbury Volatility Index 67 Day - (CVI 74) – Volatility, as measured by the Canterbury Volatility Index (CVI) remains in the mid-70s. CVI was as high as CVI 129 to start the year. Since then, volatility has fallen substantially, turning Canterbury’s volatility indicators positive.
Comment
It was mentioned 2 weeks ago, but the Nasdaq is outperforming the S&P 500 on a relative basis. Coupled with that fact, the S&P 500 is leading the Dow Jones. Historically, it is a good sign for markets when the Nasdaq is leading the S&P and the S&P is leading the Dow.
Canterbury Analytics Group performed a study, dating back to the start of 2000 (4,840 trading days) that focused on the effects of the Nasdaq leading the S&P and the S&P leading the Dow. The parameters for the test were as follows:
- Date range: 1/3/2000 – 3/29/2019 (4,840 days)
- ETFs used: SPY (S&P 500), DIA (Dow Jones Industrial Average), QQQ (Nasdaq 100)
- Relative Strength Indicator Used: Canterbury’s Volatility-Weighted Relative Strength (VWRS)
- Positive: VWRS of Nasdaq > VWRS of S&P > VWRS of Dow
- Negative: VWRS of Nasdaq
- Else (ex: S&P > Nasdaq > Dow): Same as the period prior

From the chart above, we see that when the Nasdaq maintains leadership over the S&P 500 and the S&P has leadership over the Dow, the market has a higher likelihood of experiencing a run-up. On the other hand, there are a few examples in the chart, where at market peaks, the Dow is leading the S&P which is leading the Nasdaq. This occurs right before a drop in the markets. The risk reward metrics (using daily data) for both periods are as follows:
Nasdaq>S&P>Dow | Dow>S&P>Nasdaq | |
Annualized Return | 7.87% | 2.88% |
Annualized Risk | 17.42% | 20.75% |
The table above shows that when the Nasdaq leads the S&P, which is leading the Dow, the market has a higher probability of returns with less risk. This, however, is not an “end all, be all” indicator for the markets. There are a few substantial runs when the Dow is showing leadership, as well as a few substantial declines when the Nasdaq is showing leadership. This is just an observation being made. It is usually better for the market when the Nasdaq is leading the S&P 500 and the S&P 500 is leading the Dow Jones.
Bottom Line
The Stock market has rallied substantially off its December low. Throughout the rally, volatility (CVI) has declined and the market is starting to behave more rationally. The Nasdaq leading the S&P and the S&P leading the Dow is historically a good sign for markets, as it shows that investors are willing to take on more “risk.”
The further we get from December, the easier it is to forget. Many investors experienced a wide range of emotions that may have caused them to make poor investment decisions. Having an Adaptive process, like the Canterbury Portfolio Thermostat, allows us to navigate all market environments, bull or bear, and make the necessary adjustments needed as market environments begin to shift.

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.