A New Dow World's Record-The Dow has gone 101 days without a 3 day consecutive decline.

A New Dow World's Record-The Dow has gone 101 days without a 3 day consecutive decline.

Posted on May 28, 2013

Canterbury Portfolio Thermostat - Weekly Update - 5/28/2013

Market State 1 = Bullish/Rational

MS 1 – Last 18 trading days in a row

Canterbury Volatility Index (CVI) = 56

The CVI registered a new low for the cycle that began on 4/17 at CVI 64. A declining CVI indicates a reduction in volatility. Low and declining volatility is characteristic of a stable, efficient and rational Bull market environment. A CVI below 75 is typical of a low risk environment.

Weekly Comment:
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 last S&P 500 peak was on May 21st at 1669.16. The market closed last Friday at 1649.60 for a total decline of -1.17%. Prior to last week’s decline, the previous advance started from the low on April 18 at 1541.61 and gained +8.27 through the 1669.16 peak.

It is normal and healthy for the market to take a little time to catch its breath. The low volatility is a reflection of a normal rational consolidation of the recent gains. What is not normal, but positive, is to see our Canterbury Volatility Index (CVI) register a new low after a market decline. Declines are typically accompanied with an increase in volatility not a decrease (CVI = 56 - new low).

Here is another observation I find surprising. Last week’s little correction caused our overbought/oversold indicator to go from 79% overbought to 82% oversold. That means it took just one week and a small pullback to for the market to digest most of its previous gains. As a point of reference, a 95% oversold reading is considered to be extremely oversold.

Our stocks only advance/decline hit a new high along with the S&P 500 on May 21st. We are seeing the rising tide lifting all ships. Year to date, the large-cap, mid-cap and small cap indexes are all up in the 16% range.

There may be a little more follow through, to the downside, from last week’s pullback. Also, keep in mind that an isolated, one day, 200 to 275 point move in the DJIA can occur at anytime. A large one day move is part of normal market noise.

One last positive point, the top 3 spots in our Portfolio Thermostat volatility weighted relative strength ranking are held by financials (US Broker Dealers-symbol is IAI, the Financial Sector ETF symbol XLF and Financial Services-IYG). Bull markets like to have Financials leading the way or at least close to the top.

Bottom Line: The market continues to be steady and rational. As it stands now, the risk is low and we are in a Bull market. Until the CVI (volatility) begins to increase, we can expect a similar market environment to what we have seen during the last six months.

The Canterbury Portfolio Thermostat Model

Canterbury's Portfolio Thermostat is a comprehensive portfolio management system designed to maintain stable portfolio volatility by adjusting asset allocation and portfolio’s holdings to benefit from the unique characteristics of each market environment.

The Portfolio Thermostat is designed to identify, and then categorize, the various market environments into 12 individual Market States. Market States 1 through 6 represent different market environments during a long term Bull market. Market States 7 through 12 are different stages of a long term Bear market. The Portfolio Thermostat assigns a custom asset allocation created to benefit from the unique characteristics of each Market State environment.

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.