Long-term: Positive
Volatility (Risk): Low/Decreasing
Short-Term Supply & Demand: Negative
Below are some statistics (since 1950) on MS 2:
- Market State 2 is the second most common market state, behind MS 1, occurring roughly 17% of the total days since 1950
- Market State 2 returns to MS 1 approximately 75% of the time.
- About 26% of all Bull Market State days are spent in MS 2.
Canterbury Volatility Index (CVI 50): The Market’s CVI levels remained flat for the week at CVI 50. CVI 50 indicates a low risk environment. As a reminder, high or increasing CVI is a characteristic of a bear or transitional market, whereas low or decreasing CVI is a bullish characteristic. CVI has been declining since its prior high of 102 set in April.
Rotation is a law of the market
Rotation amongst favorable securities is inevitable. There is no singular asset class that will always outperform; and no asset class that will always lag behind. All liquid traded securities will have bull and bear markets.
As an illustration, lets look at international equities. About one year ago, we discussed how the dollar and international equities were linked to each other (see August 7th, 2017 Blog). In this blog, we showed how when the dollar was underperforming most major currencies, international equities were outperforming. Today tells a different story.
Here is a chart of the US Dollar (UUP) compared to a few different currencies this year:

Source: AIQ
Here is a chart of the S&P 500 (SPY), EAFE (EFA), and Emerging Markets (EEM):
Source: AIQ
Notice how around March of this year, the dollar begins to pick up momentum while other currencies begin to fall. At the same time, the S&P begins outperforming while both the EAFE and Emerging Markets falter.
We can also see from these two tables, the rankings of each asset class on a risk adjusted basis (using Canterbury’s Volatility Weighted Relative Strength indicator), beginning August 17th, 2017 to August 17th, 2018.
Currencies
August 2017 | August 2018 | |||
Currency | VWRS Rank | Currency | VWRS Rank | |
Euro | 1 | US Dollar | 1 | |
Canada Dollar | 2 | Canada Dollar | 2 | |
Japanese Yen | 3 | Japanese Yen | 3 | |
British Pound | 4 | Swiss Franc | 4 | |
Swiss Franc | 5 | Euro | 5 | |
US Dollar | 6 | British Pound | 6 |
Equity Styles
August 2017 | August 2018 | |||
Style | VWRS Rank | Style | VWRS Rank | |
Emerging Markets | 1 | Small Cap Growth | 1 | |
EAFE | 2 | Large Cap Growth | 2 | |
Large Cap Growth | 3 | Mid Cap Value | 3 | |
Small Cap Growth | 4 | Small Cap Value | 4 | |
Mid Cap Value | 5 | Mid Cap Growth | 5 | |
Small Cap Value | 6 | Large Cap Value | 6 | |
Mid Cap Growth | 7 | EAFE | 7 | |
Large Cap Value | 8 | Emerging Markets | 8 |
From these tables, we can see that assets go in and out favor. Last year was not a great time to own the dollar, and it was a great time to own international equities. Today, the opposite is true. The dollar is strong, while international equities are weak.
Bottom Line
Since all assets will go in and out of favor, it is important to have an adaptive process that can put a portfolio in a position to limit risk and seek compounded returns.
The Canterbury Portfolio Thermostat is an adaptive process specifically designed to rotate and adjust to ever-changing market environments. The Thermostat is composed of a unique series of algorithms that recognize securities that are in favor and out of favor. The Portfolio Thermostat rotates to always hold securities that create a bullish portfolio- one that has limited risk and potential for compounding.

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.