All Flat Markets Aren't the Same // June 13, 2016

All Flat Markets Aren't the Same // June 13, 2016

Posted on June 13, 2016
Weekly Update
6/13/2016

Market State Environment (Transitional): Transitional environments are periods when both bullish and bearish market characteristics exist. 

During a “Bullish” environment, the risk of a decline is typically in the -8% to -10% range from the highest peak value, with rare outliers of -12%. During “Transitional” and “Bearish” Market environments, unconstrained risk of declines from the highest peak value can exceed -20%, -30% or more.

The S&P 500’s CVI = CVI 56 (Low and Decreasing Volatility):
Canterbury’s studies show that volatility is likely to experience periods of extremes, from high to very low. The current CVI 56 is at an extremely low level based on the fact that most markets began the year with a very sharp decline. A strong case can be made that the current activity is the quiet before the storm.
 
The current Transitional market environment will eventually shift to either a confirmed Bullish or confirmed Bearish environment.  Some of the highest risk periods occur during a Transitional market shift from a Bullish to a Transitional and eventually a Bearish environment. The reason for the higher risk is that a transition from a Bull will most likely begin near the market peak and thus has farther to fall.

The S&P 500 is running into major resistance at its old highs. The horizontal trend lines on the chart below show the points where demand pushes price to a level where supply had existed in the past. However, price has failed to break out to new highs and instead, excess supply has caused prices to move lower. The probabilities favor a continuing sideways period or, more likely, a decline from here.






Canterbury Portfolio Thermostat State 1 (Bullish) The Portfolio State represents a low-risk portfolio based on the current market environment.
 
The Portfolio Thermostat model portfolio’s CVI = CVI 20 (Low Risk)
The Model Portfolio has adjusted its ETF holdings to reflect the higher risk of an overextended market environment for global stocks. The Thermostat model is diversified in a way to remain stable regardless of the market’s short-term action. Remember, the emphasis of the portfolio should be on its efficiency and not the individual holdings.
 
Market Comment:
I want to draw your attention to the Russell 3000. It represents over 98% of the market capitalization of U.S. stocks.
 
                                                         Russell 3000:
                                                    Two and a half years             
12/30/04               3/6/15          6/30/15       10/28/15       4/19/16       Friday - 6/10/16
1236.14              1236.36        1236.12       1236.82       1236.30       1236.39
 
Largest Peak to Trough Decline (drawdown)                               Maximum Gain
                        -14.5%                                                                           +3.3%
 
The Nikkei and Europe 600, in turn, have both violated their medium-term trend lines. This is not the time to increase exposure to global equities.
 
Bottom Line:
Safety first.

 

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.



Disclaimer
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.