A Rising Tide Lifts All Ships

A Rising Tide Lifts All Ships

Posted on December 03, 2019

Market State 1 (Bullish)- The Market, as measured by the S&P 500 remains in Market State 1 following last week’s short week, since Thursday was Thanksgiving.  Most new market highs are put in while in Market State 1.  Since most highs occur during Market State 1, many pullbacks off of highs also begin during Market State 1.

Canterbury Volatility Index (CVI)- CVI 51: Volatility, as measured by the Canterbury Volatility Index, continues to decline.  As we have mentioned in weeks past, short-term volatility (a 10-day CVI) continues to decline into extreme low territory.  As volatility is squeezed down, it could release some pent-up pressure in the form of an outlier day.  There is no telling when, or the extent (up or down) of the outlier day, but the probabilities of seeing some sort of spike in volatility are higher than normal.

Comment
This week, we will take a look at the Advance/Decline Line (A/D Line).  As a reminder, the A/D Line measures market breadth.  It shows the number of stocks advancing versus the number of stocks declining.  A positive sign for markets would be the market and A/D Line putting in a high together, or the market putting in a low, while the A/D Line puts in a higher low.  A negative sign for markets would be the market putting in a new high, but the A/D Line not putting in a new high.  If the A/D Line is putting in new highs with the market, it shows that more stocks are participating in a rise, rather than just a few of the heavier weighted stocks.

The chart below shows the S&P 500 along with the stocks-only S&P 1500 A/D Line.  There are a few points on the chart.  At point (1), you can see that the market puts in the same high as it had just a month prior, but the A/D Line puts in a higher high (positive).  At point (2), the market puts in a low at the same spot it had in months prior, but the A/D Line puts in a higher low (positive).  In the most recent advance, the A/D Line had been relatively flat, meaning there was a relatively even number of stocks advancing as declining, but the market was being led by large stocks.  However, as the market put in a recent high, there was broad participation because the A/D Line also put in a new high (3). 


Source: AIQ

Portfolio Thermostat
The Canterbury Portfolio Thermostat does not aim to compete against any individual index or blended benchmark.  We know that portfolio efficiency is a moving target, and all asset classes will go in and out of favor.  The Portfolio Thermostat is an Adaptive Portfolio Strategy designed to navigate various markets and create an efficient portfolio for today’s environment- Bull or Bear.
 
Canterbury benchmarks its portfolio against key “internal” metrics, in order to measure portfolio efficiency.  These metrics are Portfolio State, Portfolio Volatility, and Portfolio Benefit of Diversification.  Together, these internal benchmarks create the Portfolio Efficiency Score.


The Canterbury Portfolio Thermostat is efficient. The Portfolio Thermostat currently holds a wide variety of asset classes ranging from sectors, industries, US styles, international, fixed income, commodities, and inverse equities.  The current securities and allocations to those securities create a portfolio with low and stable volatility that is efficient for the current market environment.

Bottom Line
The S&P 500 remains in a bullish Market State environment with low/declining volatility.  Right now, the A/D Line is confirming some of the markets advance, which shows that the troops are leading the generals and a rising tide is lifting all ships.
 
The Canterbury Portfolio Thermostat is currently positioned with a wide array of securities ranging from equities to fixed income and alternatives.  This creates an efficient portfolio for the current market environment.  Canterbury continuously monitors key internal metrics within the portfolio, in order to adapt to ever-changing markets- bull or bear.
Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

 
Canterbury Investment Management: Tom Hardin

More About Brandon Bischof

Brandon is directly responsible for managing the Canterbury Analytics Group (CAG). To date, Canterbury Analytics Group has played an important role in advancing portfolio management from a loose art form based on subjectivity and obsolete assumptions to an adaptive process with scientific rules and methods capable of providing evidence based results and statistically relevant value add results.


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.