The US Equity Markets Appear to be Positioned for a Move Higher

The US Equity Markets Appear to be Positioned for a Move Higher

Posted on June 16, 2014

Canterbury Portfolio Thermostat - Weekly Update – 06/16/14

Market State 1 (6 trading days) - Long term: Bullish; Short term: Bullish.

The Portfolio Thermostat improved from Market State 2 to Market State 1 on June 5th. Last week’s update explained why it is normal to see a short term pullback or sideways period following an upgrade in the Market State environment.

As expected, most major stock market indexes were down slightly for the week. Here is a quote from the Portfolio Thermostat’s Weekly Update on June 9th: Please keep in mind that an upgrade in the Market State environment will typically exhaust some of the short term demand. It is normal to see a small pullback or a period of sideways movement to digest the most recent gains.

Canterbury Volatility Index is at CVI = 47: The CVI (volatility) declined 1 point for the week. Volatility declined slightly even though the S&P 500 and most other major market indexes were down slightly for the week. In most cases, volatility will increase when a market declines. It is a positive sign when a market can maintain stable volatility during a short term decline.

Overbought/Oversold indicator:
Our overbought/oversold indicator is now only 38% overbought (short term Neutral). Last week our overbought/oversold indicator was "over extended” at 94% overbought. The small market pullback improved this indicator by 56 points (a surprisingly positive development).

The overbought/oversold indicator monitors for periods when the market is over extended (sharp advance or a move too high too fast and vice versa). As a point of reference, 95% to 100% overbought is considered to be an extreme short term "extended” level (short term Bearish). A 95% to 100% oversold is short term Bullish for the indicator.

Market Comment:
We are currently in a low risk environment. Volatility is at its lowest level in over 6 years. The stocks only advance/decline hit a new high confirming the recent new high in the S&P 500. This is reflective of the wide breadth of participating stocks.

Another Bullish indicator is when the riskier NASDAQ 100 declines less, during a short term pull back, than the S&P 500 and the Dow. Last week the NASDAQ was only down 0.24% while the S&P 500 and Dow were down 0.68% and 0.86% respectively.

Bottom Line:
The probabilities favor new highs in the major US market indexes. We could see some follow through on last week’s consolidation. If that does occur, any decline should be limited to a decline of about 4% from the peak on June 9th at 1951 on the S&P 500.The US equity markets are overdue for a meaningful advance. The only thing missing is a lack of positive momentum.

Currently 12, of the 14, of our portfolio’s Exchange Traded Fund’s (ETF) holdings are rated outright Buys and the other 2 ETFs are rated as a Hold.

Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom Hardin, Chartered Market Technician (CMT), makes all the final decisions on all investment and portfolio management decisions for Canterbury Investment Management. Tom has more than 30 years experience in the investment management industry and has broad breadth of knowledge. He is known as an innovator, educator and been revolutionary in the advancements in 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.