A Scientific Approach to Investing: The Canterbury Portfolio Thermostat Matrix has changed from Bull

A Scientific Approach to Investing: The Canterbury Portfolio Thermostat Matrix has changed from Bull

Posted on September 02, 2011

September 2, 2011
Update from 8/26/11

"Bear markets slide a slippery slope of hope."

Tom Hardin

Bear markets tend to be much more volatile than Bull markets. Bear market volatility can result in large one day advances as well as big down days. During August, the Dow Jones Industrials were up +430 points on 8/9/11, +423 points on 8/11/11 and +214 points on 8/15/11. Advances like those can create a lot of "hope" that the Bear market is over. Well, in just four days, following the last 8/15 advance, the DJIA was just 98 points above its low for the year! The big advancing days, just served to provide some false hope, for investors, during a Bear market.

Canterbury's Portfolio Thermostat Matrix helps determine the current market environment or Market State. We developed a matrix process that identifies 12 different Market States. Each Market State is based on combining the long term trend, medium term and short term changes in volatility, and a combination of short term market indicators. Of our 12 Market States, 6 States are Bullish, 4 States are Bearish, and 2 States are Caution.

Currently, we are in Market State 12. Market State 12 means that the long term trend is Bearish, medium and short term volatility are Bearish and short term technical's Bearish (negative).

We began the month of August in Bullish-Market State 2; typically Market State 2 is a "buy the dip" market environment. On 8/4 our Matrix moved to Bearish-Market State 6, instructing us to sell securities that have changed to one of the six Sell-Market States. On 8/11 our Matrix moved to Bearish-Market State 12.

We have actively raised cash by selling weak holdings. We have been reallocating the cash to primarily alternative Exchange Traded Fund (ETF) securities. For example, some new positions added are the Swiss Franc symbol FXF, Commodities/Agriculture DBA, The S&P 500 utility index XLU, the dividend yield is 4.3% and the inverse S&P 500 symbol SH. SH goes up when the S&P 500 index goes down.

The rally over the last week or so felt good, hope, but yesterday was down about 120 points and today looks like the Dow and S&P 500 will open down around -2%, hope dashed. Most of the alternative ETFs, we own, are opening up this morning. Our Canterbury Volatility Indicator closed at 162 yesterday. Any CVI reading above 150 is considered to be an “irrational market environment.” We will continue to maintain a defensive position until, at least, our volatility index declines more than 15% from the 171 high (145). Until we get to a positive Market State, we will continue tolower our portfolio’s volatility and work on making money in some of the names mentioned above.

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.

Canterbury Investment Management: Kim Custer

More About Kim Custer

Kimberly J. Custer, CMT is co-founder of Canterbury Investment Management, LLC. As Chief Investment Strategist, Kim oversees and coordinates all aspects of Canterbury's investment strategy. She has a wide breadth of knowledge and experience in global markets, sector and security analysis. Kim is responsible for the coordination of our investment strategy with each client's investment objectives and the timely execution of all portfolio adjustments.