Bull Markets are Not Bear Markets

Bull Markets are Not Bear Markets

Posted on January 06, 2015

Canterbury Portfolio Thermostat Weekly Update (Tuesday) 1/06/2015

Market State 2 (8 days) Long Term (Bullish) Short Term (Neutral).

The Canterbury Volatility Index (CVI 65). The CVI decreased 1 point, from the previous week.

 

Monday (yesterday) was a down day for the market. The S&P 500 closed down 37 (1.88%) and the Dow was down 331 points (1.86%). The market’s volatility had a slight increase of 3 points to CVI 68. The increase is insignificant.  A CVI of 75 or lower is considered a “safe zone,” meaning that Market declines are typically limited to normal bull market corrections of 10% or less from the peak value.

 

Overbought/Oversold indicator has improved by 31% from the previous week.  A reading of 95% or higher qualifies as an “extreme” level (meaning that the short term advance may have gone up too high and too fast).

Market Comment:

I'm not a believer in seasonality, Santa Claus rallies, etc. but it seems that the first few days of the year, since the 2008 financial crisis, have been dicey based on window dressing etc. 

 

Monday was just another example of a typical outlier which is normal and expected during a long term Bull market. Days like yesterday are no big deal and are barely worth talking about.

The main thing to remember is that a Bull market is not a Bear market. Meaning that Bull market “corrections” are typically limited to about 5% to 10%. A Bear market decline is defined as 20% or more. Bull markets corrections are almost always accompanied with negative media hype. Many investors will feel like it’s the beginning of a new Bear market……. but it is not.

Canterbury has performed extensive evidence based research that provided statistically relevant data showing that shifts between Bull and Bear markets have not occurred without prior warning. In other words, a shift between a Bull and Bear markets is a process, not an event.

Bull and Bear markets are about the predictability of risk, not the predictability of upside appreciation. Bull markets can and will have normal corrections and periods of sideways consolidation. Most of money that is made is produced by holding securities that are in Bull Market States and low or decreasing volatility.

Keep in mind that every traded security will experience both bull and bear markets. This is why Canterbury does not assign “risk labels” to asset classes. For example: “bonds are safe and stocks are “risky.” The Portfolio Thermostat model considers any Exchange Traded Fund (ETF) that is in a (Bull) Market State to be conservative (regardless of asset class) and any ETF in a (Bear) Market State to be risky.”  We only want to own securities that have Bull market characteristics with limited risk. 

Bottom Line:

The Portfolio Thermostat’s Market States are based on applied scientific principles. Statistically significant evidence shows that the model has added value by adjusting ETF holdings to match the ever-changing market environments. The technology and specialized ETFs are available to make it possible to benefit from virtually any market environment – 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.

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.