The S&P 500's Sector Leadership is Expanding

The S&P 500's Sector Leadership is Expanding

Posted on September 25, 2017
Market State 1 Bullish/Rational (17 trading days): The S&P 500 remains in a long-term low risk bullish market environment.
Canterbury Volatility Index (CVI 37):  The CVI volatility declined 2 points for the week. Market volatility below 40 is considered to be at an extreme low level. Low volatility is a primary bullish characteristic. That said, periods with extremely low volatility, CVI 40 or lower, are subject to random, one day, outliers of 1.5% or more. In most cased these “outliers” are followed by normal market fluctuations as if the outlier never happened. In other words, a single day of high volatility will typically not change the overall market environment, other than releasing some pent up pressure.

One of the most popular indicators for defining the difference between a long-term bull market vs. a long-term bear market is the 200 day moving average of price. The following chart shows that the S&P 500 has traded above its 200 day moving average (except for 1 day) for over 18 months. There is no sign that the 200 day moving average will be broken anytime soon.

Source: AIQ
We have seen most of the lagging areas of the market playing catchup the last few weeks. For example, the small cap value ETF (IJS) and large cap value ETF (IVE) were both pretty much flat year-to-date until about three weeks ago. On the other hand, the leading indexes like the S&P 500 and NASDAQ 100 have consolidated their gains and are no longer overbought.
Market Indexes Year-to-Date

Source: AIQ
The net impact of the short-term shift from growth to value is healthy for the overall market. The advance/decline line (number of stocks going up vs. down) has improved now that the former laggards are beginning to participate in this low risk/bullish market.
Bottom Line:
The S&P 500 has been experiencing the lowest, trailing 6 months, volatility (as measured by the Canterbury Volatility Index - CVI) in history. Canterbury’s CVI records go back to 1929. Canterbury’s studies show that extreme low volatility is likely to be followed by higher than normal volatility. For now, the S&P 500 and most other equity indexes remain firmly entrenched in a low risk market environment.

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.