S&P 500 Closes Up for the Month of April

S&P 500 Closes Up for the Month of April

Posted on May 06, 2014

Canterbury Portfolio Thermostat – Weekly Update 05/5/2014

Market State 2 (36 trading days) - Long-term: Bullish; Short-term: Neutral/Bearish

Canterbury Volatility Index is at CVI = 56: The CVI was down 4 points for the week. The volatility as measured by the CVI has declined by 8 points (declining volatility) or -14% from the most recent high on April 16th at CVI 64. The market’s volatility, as measured by our Canterbury Volatility Index (CVI), continues to remain in our CVI 75 "safe zone.” If the CVI remains below 75, then any correction should be limited to about the -4% to -8% ranges.

Low and declining volatility is Bullish for the market. Price stability is a sign of market efficiency and rational buying and selling by investors. On the other hand, very low volatility can also be a sign of complacency. A high level of investor complacency, such as what we are experiencing now, can set up an environment for the isolated "one day outlier.” This means that the probabilities are higher than normal that we could see a one day 200 to 275 point advance or decline in the Dow. If such an event occurs, it should only impact investor complacency that could help reboot the market and lead to a move out of the current trading range. There should be no meaningful affect on the current Bullish market environment.

Overbought/Oversold indicator:
Our Portfolio Thermostat overbought/oversold indicator closed at 51% overbought (short term Neutral). This indicator has been in the neutral range for over two weeks.

Market Comment:
The S&P 500 was down a little less than 1 point for the week and was up a little more than 1 point the week before. As stated earlier, the S&P 500 has been locked into a trendless trading range all year. The S&P 500 has continued to move sideways, over the last four months, as it digests 2013’s stellar 9.9% fourth quarter.

The rotation in leadership from Growth to Value stocks continues to amaze. The Portfolio Thermostat has successfully rotated its Exchange Traded Fund (ETF) holdings to move in concert with the dramatic shift in the markets. Only 3 of the 14 ETFs held on 12/31/13 remain in the portfolio today. As of the time of this writing, 13 of our 14 ETF holdings are ranked higher than the S&P 500 based on the Portfolio Thermostat’s Volatility Weighted Strength ranking.

Bottom Line:
It is rare to see such a sudden change in market leadership. This is particularly true during a Bull market with lower than normal volatility. The Portfolio Thermostat makes trades when its algorithms determine that a shift is occurring in the current market environment. The Portfolio Thermostat’s rotations, in ETF holdings, helped make it possible to preserve the 4th quarter’s gain. It is more typical to see a period of consolidation following a large short term advance. A normal consolidation, following a sharp advance, can easily retrace 50% or more of the previous gains.

What could cause the Market States to turn more cautious or Bearish? A sharp increase in short term volatility as measured by our Velocity of Volatility indicator would be the most likely cause for such an event to occur. It would appear that the Portfolio Thermostat’s Market States (market environment) should continue to shift back and forth between Bullish - Market States 1 and 2. It doesn’t look like a shift to a more Bearish environment will happen anytime soon.

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.