When Will the Current Bull Market End?

When Will the Current Bull Market End?

Posted on November 18, 2013

Canterbury Portfolio Themostat-Weekly Update-11/18/2013

Current Market Environment: Market State 1: (last 25 trading days): Bullish/Rational - Market State 1 is the most predictable of the Portfolio Thermostat’s 12 Market States (environments). The risk, while in MS 1, is typically around -2% to -4% from the previous market peak. The S&P 500’s closed at 1798.18 up about 1.5% for the week. A new world’s record all time high.

Canterbury Volatility Index (CVI) = 55 (rational market environment) The CVI was down 2 points for the week. The S&P 500 was up every day except Tuesday. Volatility remains low and declining which is a characteristic of Bullish low risk and Bullish market environment.

Our short term overbought/oversold indicator is currently 63% overbought (Neutral) up from 52% the previous week.

What Drives Changes in the Price of a Market or Security? All markets and securities compete for investor’s dollars. Most investors sell assets they believe are likely to decline in future value. Selling an asset or security will produce cash. The cash received from a sell can be used to buy (accumulate) new securities which investors believe will appreciate in future value.

The information used, to help make buy and sell decisions, is not equally distributed to all investors at the same time. For varying reasons, some investors gain access to quality information more quickly than others. This information can be analyzed to provide valuable insights regarding future fundamental value. As a result, these "first to know” investors will make their buy and sell decisions more quickly and with more accuracy than the less uninformed.

The combined actions of all investors, informed and less informed, will produce variable changes in price and volume on traded securities. This valuable supply and demand information can be analyzed and used to help separate the actions of informed (smart money) verses the less informed investors. The Portfolio Thermostat’s algorithms will then identify markets and securities that have positive or Bullish characteristics.

Only Own Securities with Bullish Characteristics: There are many common characteristics that tell us when a market or security is in a "Bull or Bear market environment. The following are two examples of early indications that a Bull market may be coming to an end:

  • An increase, or short term spike, in our Canterbury Volatility Index (CVI) causing the Portfolio Thermostat’s volatility indicators to turn negative.
  • A decrease in the number of total securities that are advancing verses declining. We refer to this as the "breadth.” of the market.

My good friend David Vomund, with Vomund Investment Management, is one of the most innovative and accurate market analysts I know. David has made many contributions to the development of Canterbury’s Portfolio Thermostat.

David publishes a weekly newsletter called VIS ALERT. The following comment was taken from the issue published on 11/16/13:

There is a lot of chatter on CNBC about poor market breadth. I can see why. With most market averages at a new high one would expect the Advance-Decline Line to also be at a high. The well published AD Line based on NYSE data is below its late October peak.

The problem with NYSE data is it includes bond funds and warrants. With interest rates going higher, the bond funds are obviously not participating in the current rally in stocks. Instead, it’s best to calculate market breadth on a large list of stocks. The S&P 1500’s advance decline line is at a new high. Therefore the market breadth is not flashing a warning sign of a deteriorating market.

When Will this Bull Market End? As baseball legend Yogi Berra would say, "It ain't over til it's over.”

There are no current indications that the Bull market is coming to an end. If our indicator readings remain about where they are today, then we shouldn’t experience anything more than normal short term corrections. The Portfolio Thermostats primary indicators could change next week or several years from now.

The futile effort of attempting to predict an end of any market environment, until the primary characteristics of the existing environment begin to change, is not reflective of a scientific rules based model. Subjectivity has no statistical predictive value. Acting on someone’s opinion of what could or should happen can result in poor investment decisions.

Bottom Line: We are less concerned with Bull and Bear markets than we are about only holding securities with Bull Market characteristics. Eventually, the Portfolio Thermostat will tell us to sell our stocks and purchase different securities in alternative market classes. That is not the case today.

The goal of the Portfolio Thermostat is to make unemotional adjustments in holdings for the purpose of maintaining a stable and efficient portfolio through dynamic and ever-changing market environments. Today, we have a 21st century portfolio strategy and all the innovative investment tools we need and to benefit from any market environment – Bull or Bear.

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.