Canterbury Portfolio Thermostat's ETF selection Process

Canterbury Portfolio Thermostat's ETF selection Process

Posted on February 23, 2015

Canterbury Portfolio Thermostat™ Weekly Update 2/23/2015

The Portfolio Thermostat identifies 12 different market environments called “Market States.” Each Market State has its own unique characteristics and tendencies.

 

The Macro- Market States are used to provide a “big picture” view of the characteristics of the current equity markets. The S&P 500 is commonly referred to as “the market.” There are 5 Bullish (rational – low volatility) Market States; 4 Bearish (volatile and/or increasing volatility) Market States; 3 Transitional Market States (indicating caution).

 

Macro - Market State™ (calculated on the S&P 500)

Market State 1 (2 Trading Days): Long-term (Bullish) Short-term (Bullish): Market State 1 is the most positive of the Portfolio Thermostat’s 12 Market States. The improvement in Market State, from MS 5 to MS 1, came as a result of a decrease in the S&P 500’s volatility.  A 10% decline in the CVI was required to cause a shift back to the Portfolio Thermostat’s lowest and safest volatility market environment.

 

(The market’s volatility, as measured by the CVI, has now declined by 8 points (-10%) from the highest reading on 2/03/2015 at CVI 77.)

 

Macro - Canterbury Volatility Index™ (calculated on the S&P 500)

Canterbury Volatility Index™ (CVI): CVI = 69 - A CVI of 75 or lower is considered a “safe zone.” The Market’s risk should be limited to normal “Bull market” pullbacks in the -5% to -8% (marked from the current peak.) Declines are typically limited to a normal bull market pullback or correction in the 5% to 10% ranges.

 

Market Comment:

Most major U.S. equity market indexes closed the week at new highs. The Portfolio Thermostat’s Overbought/Oversold indicator remained at the same reading as the previous week (58% overbought - neutral). This indicator continues to remain neutral even though most equity indexes keep putting in new highs. Markets will typically approach a short-term overbought (over-extended) condition after hitting a new high (positive/Bullish).

 

The stocks only Advance Decline line is confirming the new market highs by putting in its own new high on Friday (the AD Line indicates the breadth of the advance). Also, the NASDAQ as well as the mid and small cap stock indexes are outperforming the large cap S&P 500 and Dow. This is another positive indication.

 

Bottom Line:

The Bull market in most equities remains intact. That is not the case with bonds and most commodities.

 
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.