Small and Medium Capitalized Stocks are Performing Well

Small and Medium Capitalized Stocks are Performing Well

Posted on March 02, 2015

Canterbury Portfolio Thermostat™ 
Weekly Update 

The Portfolio Thermostat identifies 12 different market environments called “Market States.” Each Market State has its own unique characteristics and tendencies.


The Macro- Market States are used to provide a “big picture” view of the characteristics of the current equity markets. The S&P 500 is commonly referred to as “the market.” There are 5 Bullish (rational – low volatility) Market States; 4 Bearish (volatile and/or increasing volatility) Market States; 3 Transitional Market States (indicating caution).


Macro - Market State™ (calculated on the S&P 500)

Market State 1 (7 Trading Days): Long-term (Bullish) Short-term (Bullish): Market State 1 is the most positive of the Portfolio Thermostat’s 12 Market States.

Macro - Canterbury Volatility Index™ (calculated on the S&P 500)

Canterbury Volatility Index™ (CVI): CVI = 64 - A CVI of 75 or lower is considered a “safe zone.” The Market’s risk should be limited to normal “Bull market” pullbacks in the -5% to -8% range.


The market’s volatility, as measured by the CVI, has now declined by 13 points (-17%) from the highest reading on 2/03/2015 at CVI 77. The volatility shot up during the first month of 2015. February was a strong month for the S&P 500 while volatility declined.


Market Comment:

The S&P 500 was down just a fraction (-5.8 points) last week. On the other hand, the NASDAQ 100 was up a fraction (2.56 points).  A good indication of a healthy Bull market is when the NASDAQ is outperforming the S&P 500. In fact, it is best when the small and medium capitalized stocks, in general, are out performing large cap stocks.

The markets can sometimes resemble a battlefield. As a kid, I played a lot of “Stratego,” a board game based on the Napoleonic wars. The goal was to protect your flag and the best way to do that was to keep the low ranking pieces in the front of the battle and the higher ranking officers more toward the back, near the flag.

Bull markets are better positioned when the small and middle capitalized (cap) stock indexes are (out in front). Meaning that they are performing better than the large-cap generals.” This has not been the case for most of the last 5 or 6 years. The S&P 500 has consistently been one of the strongest global equity market indexes, while smaller cap-indexes, like the Russell 2000 has lagged way behind.

The tide may be turning. The Russell 2000 and other small to mid-cap stocks have been moving up to the front over the last 3 or 4 months. This can mean that the breadth of the market is strong and broad (rising tide lifting most ships). It also reflects that investors are inclined to take a little more risk by investing in smaller stocks.

Bottom Line:

Most equity market indexes are either close to or have put in new highs. That said the markets are not overbought (too high). The Canterbury Overbought/Oversold indicator is just 58% overbought (neutral).


The Portfolio Thermostat’s algorithms continue to reflect a low risk market environment for US equities. 

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.