The Bigger the Base... The Higher in Space

The Bigger the Base... The Higher in Space

Posted on April 06, 2015

Canterbury Portfolio Thermostat™
Weekly Update

Market State 2 (MS 2 has been in place for the last 8 trading days): Long-term (Bullish) Short-term (Neutral). The S&P 500 and Dow finished the short week up just a fraction +0.03%. The Russell 2000 continues to outperform large cap stocks by closing up +1.23% for the week.


Canterbury Volatility Index (CVI): CVI 66 - The CVI remained at the same level as last week. A CVI at 75 or below is considered to be a “safe zone.” Low and stable market volatility is a primary Bull market characteristic.


Our Overbought/Oversold indicator finished the week at 58% Oversold (Neutral). This indicator declined 27 points, from 85% Oversold last week, moving it from Bullish to Neutral. 


Market Comment:

The S&P 500 is no longer the King of the Portfolio Thermostat’s Style/Index Group. The S&P 500 has been at, or close to, the top of our Volatility Weighted Strength report since 2012. A shift in the leadership away from U. S. large capitalized indexes (Dow and S&P 500) and toward mid and small cap market indexes began near the end of last year (2014). In general, international stocks, with the exception of China and India, have underperformed U. S. stocks for an extended period of time. In fact, the comparison of performance between most U. S. stocks versus international stocks have not even been close after adjusting for volatility risk.


The leadership is beginning to change. Our daily reports are now showing both Large and small cap international stocks moving ahead of the S&P 500. Currently Growth stocks are beating Value. Small and mid cap U. S and international stocks are beating large cap International (EAFE) while the EAFE just moved ahead of the S&P 500 on our Volatility Weighted Strength report.


The Bigger the Base…The Higher in Space:

This old supply and demand maxim is one of my favorites. Simply put, a base occurs following an extended period of a trading range of sideways prices. Typically a base will begin following a failed attempt to break previous high in a market, or security. Each attempt, at a new high, fails followed by another and another. The line of past highs is commonly referred to as “resistance. In such a case, most past investors will run out of patience after several failed attempts to “breakout” of the trading range. Eventually they get tired of not making money and sell their holding. Finally, the price breaks above the old line of previous highs, hopefully gaps through the old high with higher than normal volume. The psychology has now changed from disappointment to optimism. All existing investors will now have profits and are content to hold (not sell). New investors are attracted by the fact that the market, or security, is trading at a new high but is not much above the previous high from a period from the distant past.


The following are a couple market indexes that are breaking out of big (long) bases:

The EAFE index of large capitalized international stocks is beginning a new Bullish trend upward. The EAFE has put in a series of higher highs (marked by arrows) followed by higher lows in price. (Bullish)

Bottom Line:

All liquid traded markets are driven by the law of supply and demand. Supply and demand will dictate that every market or security will experience both, bullish and bearish market environments. Leadership will change along with the flow of investor’s dollars from one investment to another.


The Portfolio Thermostat’s algorithms are designed to identify these changes in leadership and to only own Exchange Traded Funds (ETFs) that have Bull market characteristics. The goal is to maintain stability by keeping the Portfolio Thermostat’s “portfolio” of ETFs in a Bullish Market State regardless of ever-changing market environments.

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.