Why Does the Market Keep Going Up in the Face of Bad News?

Why Does the Market Keep Going Up in the Face of Bad News?

Posted on May 20, 2013

Canterbury Portfolio Thermostat - Weekly Update - 5/20/2013

Market State 1 = Bullish/Rational - Typical risk, when in MS 1, is -2 to -4%.

Canterbury Volatility Index (CVI) = 59 - The CVI is down 5 points from the high at 64. A declining CVI indicates a reduction in volatility which is positive. A CVI below 75 is typical of a rational/low risk Bullish market environment.

The only thing that has changed from last week is that our overbought/oversold indicator is now 79% overbought vs 77%.

Expect more of the same, at least until our CVI gets above 75. A normal short term pull back could serve as a healthy breather for the market. Please note that an isolated, one day, 200 to 275 point move on the DJIA is normal and can happen at any time without warning. Such a move would have little impact on the existing market environment.

Why does the market keep going up in the face of bad news?

What would you guess is the percentage of good verses bad news reported on your local 6:00 news program? My guess is about 90% bad news and could be even higher if my Colts or Pacers lose. My point is that…bad news sells.

During the last 9 months, the financial news has been even more negative than usual. There were concerns about the fiscal cliff, sequester, tax increases, Wall Street literally under water, and the list goes on and on. This has been a very scary time for investors.

In the face of all the bad news, did you know that the Greece ETF (GREK) was up 40% in the last month or Italy’s interest rate has come down from 7% to below 4%? Almost all major indexes are registering new highs. I must admit, my gut certainly did not predict double digit percentage advance in our portfolios, year to date.

What I do know is that our Portfolio Thermostat Market State algorithm turned Bullish on August 15, 2012 and has remained in a Bullish market environment through today.

The lesson to be learned, and remembered, is that investment decisions should not be based on news reports or what our emotional gut feeling tells us to do. Portfolio management is not a subjective art. Successful Portfolio management requires a quantifiable scientific process to manage risk and to produce long term compounded returns.

The Canterbury Portfolio Thermostat Model: The Portfolio Thermostat model is a dynamic rules-based process designed to stabilize portfolio volatility by adjusting to the changing nature of markets. It actively manages asset allocation and diversification to most benefit from each market environment’s unique characteristics. The Portfolio Thermostat helps maintain acceptable portfolio fluctuations and avoid "substantial declines.” Substantial declines destroy the likelihood of generating compounded returns, which is the primary objective of all rational investors. The inspiration for the Portfolio Thermostat arose from the need to manage portfolio volatility and generate compounded returns throughout all market environments.

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.