The Portfolio Thermostat Remains in a Bear Market State // January 25, 2016

The Portfolio Thermostat Remains in a Bear Market State // January 25, 2016

Posted on January 25, 2016

Weekly Update

Market State 12A - Transitional/Bear: The Portfolio Thermostat has been in one of the “Transitional/Bearish” Market States for the last 96 trading days, beginning on August 20, 2015 when the Portfolio Thermostat shifted to Transitional - Market State 6. The next day, August 21, 2015, the market environment moved to Transitional/Bearish Market State 12A.

Canterbury Volatility Index (CVI 97) – Bearish: Volatility, as measured by the CVI, remained basically the same last week. A CVI of 75 or lower is representative of an “efficiently” traded market. Nonetheless, market volatility up to the CVI 90 range is still an indication that the benefit of diversification is showing meaningful risk reduction. A sharp increase in volatility, however, can trigger an alert from our Velocity of Volatility indicator. In such an event, the Portfolio Thermostat’s volatility rating will turn Negative (bearish), even if the volatility score is below CVI 75.

Overbought/Oversold indicator (76% oversold): Short-Term Neutral.

The Overbought/Oversold indicator’s purpose is to provide early indication of a “short-term” change in market direction that can last for a few days or weeks. Extreme readings of 95 or higher, either overbought (bearish) or oversold (bullish) would justify an adjustment in the portfolio’s ETF holdings.

Last week’s update discussed the oversold (bullish) short-term status of the market. Our indicator, above, was at an extreme 97% oversold. Last week’s blog said to “expect another short-term ‘bear market rally.’ It would be unlikely that a typical “oversold” rally would get very far and it is low probability that the next rally will be any different. In anticipation of a short-term rally, the Canterbury portfolio sold 2 of its 5 inverse ETFs last week for profits.”

Most global equity indices rallied strongly last Thursday and Friday, and the short-term condition is no longer at an “extreme” oversold level. There could be a continuation of the short-term “bear” market rally. Make no mistake, though; we remain in a high risk market environment. Our portfolio has made the necessary adjustments to stabilize its volatility. As a result, the Portfolio Thermostat model is still up slightly, even though most major markets are down year-to-date and down substantially from the peak of the last bear market rally that ended on the November 3rd S&P 500 peak.

Bottom Line:

Stay the course.

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.