Canterbury Weekly Update

Canterbury Weekly Update

Posted on December 27, 2016
12/27/2016

Market State 1: Bullish (33 trading days): Market State 1 represents a long and short-term bullish environment.  The market had been overbought but sideways trading over the last couple weeks has helped the market move to a neutral condition.
 
It seems that most of the media attention is on the possibility of the Dow breaking the 20,000 level. Last week the Dow was up 0.5% while the S&P 500 was up 0.3%. The Dow’s relative strength has been substantially stronger than both the S&P 500 and NASDAQ.
 
Canterbury Volatility Index (CVI 45): Volatility, as measured by the CVI, has been low and declining after the wild moves following Election Day. Canterbury’s studies have provided evidence showing that a volatility range of about CVI 50 to CVI 75 is optimal. In the past, extremely low volatility has typically been followed by a short burst of higher than normal volatility.
 
For example, the last time volatility was below CVI 45 was back on 9/24/2014. The following 14 days saw a -6.8% correction. The 30 days that followed the correction reversed back up +11.3% and took the S&P 500 to a new all-time high.
Expect the Dow 20,000 to act like a magnet. The financial media will lead the celebration and fanfare. Expect a normal bull market correction to begin shortly following the Dow 20,000 celebration.
 
Market Comment:
In the past, I have discussed at length the fact that markets do not produce predictable returns based on the calendar. The last two years have given us many examples of how the markets can stop on a dime and change directions. Markets, like NFL running backs, are constantly shifting back and forth but the distance back and forth is much larger than the net total gain and loss at a specific point in time.
                                                                           
It is not unusual for investors to experience two or three years without a net positive return. On the other hand, there have been many consecutive two or three year periods that have recorded both substantial gains and substantial losses. One needs only to look at history to realize that markets, and portfolios, rarely produce quarterly or annual returns that are in line with average expectations. For example, most end of year returns are either higher or lower than a 6% to 10% expected return.
 
Did you know that the S&P 500 closed at 2088 on 12/26/2014 and then traded at the same 2088 level three-business days before the presidential election? During that time, the market traded in a range spanning almost 20% to end up where it started.
Source: AIQ

What If You Could See Into The Future
One of the most interesting points is that most thought a Trump win would spell disaster for the markets.
What if you received a call from someone with a Crystal Ball that could see the future up to 11:30 pm on election night? The individual told you that Trump was going to win and the Dow futures were down 800 points. You are given the choice, buy stocks or buy Treasury bonds?
Which would you do?                    
I would guess…buy BONDS?
  Source: AIQ

Bottom Line:
Successful portfolio management requires much more than the ability to predict events. Markets are liquid and they will fluctuate in price. This means that they are driven by supply and demand and will behave in a counter intuitive manner.

Having access to a Crystal Ball that could predict future events would most likely cause more challenges than benefits in your investment decision making.
 

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.