The Market Environment Is Improving

The Market Environment Is Improving

Posted on June 26, 2017
Market Update 6/26/2017
Macro - Market State (Based on the S&P 500)
Market State 1: Bullish/Rational (23 trading days): The S&P 500 established a new high 2,453 on 6/19/17 and closed the week at 2438.
Per Canterbury’s studies, the S&P 500 has been in Market State 1 for a total 908 periods since the beginning of 1950. Most new market highs occur while in Market State 1. Market State 1 has accounted for a 42.2% of the total trading days. During that time, 84.2% of the new market highs are accounted for while in Market State 1.
From a risk perspective, the largest S&P 500 correction while in Market State 1 was -7.76%. On the other hand, 95.2% of the market corrections (maximum declines) were only -5% or less in each Market State 1 period. In other words, Market State 1 will typically be subject to a normal -3% to -5% correction at any time. So, what do these statistics mean? Market State 1 is a good place to be.

Canterbury Volatility Index (CVI 34): Volatility did not change from the previous week and continues to remain at a historically low level. Low volatility is a primary bull market characteristic.

Source: CIM Market States Chart

Last week I pointed to three items that could lead to a bull market correction.
The move in Canterbury’s Volatility Weighted Rankings to defensive Sectors, coupled with extreme low volatility, and the long period since the last correction of more than 5% would lead us to believe that a normal correction of -5% to -10% could be around the corner.
What a difference a week can make in the market. Last week, the NASDAQ 100 and Emerging Markets regained their leadership positions (relative strength) vs. the defensive sectors (a positive sign for the market). The breadth (number of stocks advancing vs. those declining) shot up and is at a new high. The Portfolio Thermostat is in Market State 1 and volatility is low.

Source: AIQ

The Portfolio Thermostat has made some adjustments in holdings to adapt to the current market environment. We remain in a positive environment but remember, the market is always subject to a random 5% correction, as the market continues its stair-step pattern of new highs, followed by a period of "backing and filling" before attempting to set more new highs.


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.