Those Who Wanted Out Now Want In

Those Who Wanted Out Now Want In

Posted on December 08, 2014

Canterbury Portfolio Thermostat -Weekly Update- 12/08/2014

Market State 1 (28 Trading Days): Long-term (Bullish) Short-term (Bullish): The S&P 500 just eked out another new high on Friday closing at 2,075.37 up +0.4% for the week.


Canterbury Volatility Index closed Friday CVI 53 (Bullish): A volatility reading of CVI 75 or lower is considered to be a safe zone.

As a review, the Canterbury Portfolio Thermostat is a comprehensive rules based portfolio management process. The model identifies and categorizes 12 different market environments called “Market States.” Each Market State has its own unique characteristics and tendencies.

The Portfolio Thermostat’s algorithms work together for the purpose of creating and maintaining an efficient portfolio by making appropriate adjustments, to move in concert with the ever-changing markets.


The Portfolio Thermostat portfolio will typically hold between 8 and 14 Exchange Traded Funds (ETFs). Our rules based process continually monitors a diverse universe of over 130 Exchange Traded Funds (ETFs).


Overbought/Oversold "Oscillator” is now only 39% overbought (Short term Bullish): This indicator tells us when the market has gone either up or down too quickly. The Overbought/Oversold "Oscillator” was at an extreme 97% overbought (Short term Bearish) on 11/10/14 due to the +9.44% sharp advance over just an 18 day period.

The probabilities would have favored a normal Bull market pullback (decline) in order to digest the previous 18 day +9.44% gain. Well, the Dow and S&P 500 did not decline, but instead continued to go up another 2% through last Friday and is now short term oversold (Bullish).

So how did the market work off its overbought condition? The market took a breather by trading sideways, with a slight upward bias, over the last three or four weeks. Plus there is plenty of cash available to be invested.

Portfolio managers and investors who followed their emotions sold to raise cash. The high cash reserves have been the primary source of buying that has fueled the market higher.  Those who followed the herd by emotionally selling into the correction and finally capitulated, at the bottom on October 15th, got “whipsawed.”


Those portfolio managers, who were fooled into selling at the bottom, have been “window dressing” their portfolios by buying back securities (at much higher prices) to make their portfolios appear that they were invested at year end. 

Market Comment:

The Portfolio Thermostat’s volatility continues to decrease. The CVI volatility has either remained the same or decreased for 24 straight trading days (no up ticks in the CVI). During the same time period, the largest S&P 500 decline has been just -0.94% and occurred in just 2 days. In other words, the market has gone straight up since the October 15th bottom.

The tight trading range over the last few weeks can bring one of those “one day outliers” 200 to 275 point days. Our stocks only advance decline line, calculated on the S&P 1500 stocks, is at a new high reflecting the broad breadth of the advance.

Bottom Line:

Expect more of the same. Bull market corrections are always subject to a 4% to 8% correction that can happen at any time. The probabilities would favor a shallow correction, if any, through the end of the year.

Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom Hardin, Chartered Market Technician (CMT), has more than 30 years experience in the investment management industry. 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.