S&P Returns to a Bullish Market State-Risk Should be Limited

S&P Returns to a Bullish Market State-Risk Should be Limited

Posted on May 01, 2018
Market State 4: Bullish (4 days)
The S&P 500 recently moved from Transitional Market State 6 to Bullish Market State 4.  The transition to Market State 4 was caused by a recent decline in volatility off its April 6th high of 102.  The characteristics of Market State 4 are as follows:
Long-Term: Bullish
Volatility: Caution, but declining from previous highs
Short-Term Supply & Demand: Negative
Studies conducted by Canterbury’s Portfolio Analytics team, using S&P 500 data since 1/2/1950 (over 17,000 trading days), yielded the following statistics about Market State 4:
Occurrence: Rare- 143 days / 17,000+ days ; 19 total periods
Transitions to: 74% go to MS 1,2, or 3 ; 26% go to either MS 6 (21%) or MS 10 (5%)
Most Recent: Mid-March 2018; MS 4 transitioned from MS 6 and transitioned back to MS 6
Canterbury Volatility Index (CVI 89):
CVI has declined 13 points off its high of 102 set on 4/6/2018.   This caused Canterbury’s Volatility Indicator to turn from negative to caution.  While CVI is declining, it remains high with exposure to possible outlier days (beyond +/-1.50%).  Canterbury will continue to monitor volatility for continued decreases or possible spikes.
The market has seen a wide range of volatility this year.  CVI levels have ranged from CVI-32 to CVI-102; the peak to trough decline on the market has been -10.16%; and there has been 13 outlier days (+/-1.50%) since the start of the year (compared to 2 in all of 2017).  With all that being said, the market is at roughly the same place it was to begin the year (down -0.96%).
The following chart of the S&P 500 shows today compared to the beginning of 2018 along with support and resistance lines:

Source: AIQ
As shown in the chart above, the S&P 500 is at about the same level today as it was at the beginning of the year.  The market has tested support levels of 2580 twice now and has a declining resistance line. We may see a few more tests of these lines before the market breaks out one way or another.  On a side note, the A/D line (see last week’s blog) remains healthy.
Bottom Line
The market has been exposed to a lot of noise this year.  This follows a year when CVI was at extreme lows for a record amount of time.  The market we are seeing now is different from the one we saw last year, but Canterbury’s indicators show bullish signs.  It may take some time for this market to fizzle out and have volatility decline into a “normal” range.  Do not pay attention to the noise you hear on TV.
The Canterbury Portfolio Thermostat will continue to monitor changes in the market and make the necessary adjustments to adapt to any environment- 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.