One Day Market Outliers Are Expected

One Day Market Outliers Are Expected

Posted on March 27, 2017
Weekly Update

Market State 2: Bullish/Rational (4 trading days): – Last week the S&P 500 shifted from bullish - Market State 1 to bullish - Market State 2. The shift came because of Tuesday’s one day outlier decline (-238 points on the Dow, -29 points on the S&P 500 and the NASDAQ 100’s 108-point decline.)  
The shifting between Market State 1 and 2 represents normal bull market price action. In fact, Market State 2 typically has less risk, than MS 1. In the current case, our indicators are reflecting a slightly oversold market environment, a positive indication.
Canterbury Volatility Index (CVI 37) Canterbury’s studies show that the market’s optimal volatility range is from CVI 50 to CVI 75. The last Weekly Update focused on the high likelihood for potential single day outliers (one day move of ±1.25% or more) following a period of low volatility.

The following is an excerpt from a recent Canterbury Weekly Update: Periods of extremely low volatility are typically followed by “single day outliers” that can exceed 1.25%. Thus, the analogy of squeezing down a spring and then letting it go to release the pressure. Our studies show that the outlier days are more typically down as opposed to up. The current period may have a higher probability of a breakout to the upside.
The S&P 500 did experience a one day outlier of +1.4% on March 1st and was followed by a   
-1.3% correction over the next six trading days. The pressure from the low volatility “squeeze down” has not been relieved. Expect one or more outliers, exceeding ±1.25%, in the days ahead.
Last Tuesday, saw another outlier, and more outliers are likely until the Canterbury Volatility Index begins to increase enough to get near the low end of the optimum volatility range of about CVI 45 to 50.
Comments on ETF Security State ratings and Volatility Weighted Relative Strength rankings.
  • The Dow Jones Industrials ETF (DIA) Remains at the top of our Volatility Weighted Relative Strength list. DIA is currently rated in bullish- Security State 2.
  • The S&P 500 ETF (SPY) remains a buy in bullish - Security State 2 but has been moving down the Volatility Weighted Relative Strength list.
  • The Technology Sector remains strong.
  • The Utilities Sector has been moving up in our universe of Global Equity ETFs.
Bottom Line:
The Nasdaq 100’s relative strength is stronger than the S&P 500. The markets tend to perform better when the NASDAQ outperforms the S&P 500. The three U.S. major market indexes (Dow, S&P 500 and NASDAQ 100) continue to make the equity markets look stronger than they are. The Stocks Only Advance/Decline Line (number of stocks going up verses going down) has pulled back to the January level while the indexes are higher. In other words, the major equity indexes are outperforming the average stock.
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.