Even Bull Markets Can Have Scary Days

Even Bull Markets Can Have Scary Days

Posted on June 03, 2013

Canterbury Portfolio Thermostat - Weekly Update - 6/03/2013

Market State 1 = Bullish/Rational – MS 1 has been in place for the last 23 trading days. Market State 1 is the most predictable of the Portfolio Thermostat’s 12 Market States (environments).

Canterbury Volatility Index (CVI) = 58 - A CVI below 75 is typical of a low risk/Bullish stock market. Friday’s decline accounted for only a small 3 point increase in our Canterbury Volatility Index (CVI 55 to 58).

Last Thursday, the CVI registered a new cycle low (CVI 55). Low and declining volatility is characteristic of a stable, efficient, and rational Bull market environment.

Our overbought/oversold indicator closed Friday at 92% oversold. This indicator tells us that stocks are near the low of their short-term trading range (meaning lower risk.)

Weekly Comment:
Friday’s 209 point "plunge” on the Dow, the S&P 500’s decline of -1.43% produced the expected strong reaction from the financial press. The question is: how much damage was done to the current Bull market? Not much, if any.

The following quote is from last Monday’s Portfolio Thermostat Weekly Update: "There may be a little more follow through, to the downside, from last week’s (now two week) pullback. Also, keep in mind that an isolated, one day, 200 to 275 point move in the DJIA can occur at anytime. A large one day move is part of normal market noise.” May 28, 2013- Tom Hardin

Sharp market declines, as seen on Friday, are alarming, if not downright frightening. All markets have downside fluctuations, including Bull markets. This short-term market noise has no meaningful impact other than increased emotional risk for investors. This is why there is no room for subjectivity in investing. Investment management is not an art; it is a science. Having a strong investment discipline means that we trust and follow our model.

The Portfolio Thermostat model tells us we are currently in (Bullish) Market State 1. The short-term risk, while in Market State 1, is typically in the -2% to -4% ranges from the previous market peak. The S&P 500’s previous peak was on May 21st at 1669.16. The market low was registered last Friday at 1630.34. The peak to trough decline currently stands at -2.30% and is considered to be at the low end of a Market State 1 normal correction range.

Last week saw a decline in large-cap and dividend paying stocks. That being said, many averages were actually unchanged. The S&P 500 gave back two week’s worth of gains but the NASDAQ moved sideways. Mid-cap indexes were also mostly unchanged for the week, while small-cap growth was actually up. Last week was not a broad-based selloff.

Bottom Line:
The U. S. market continues to maintain normal and rational fluctuations. As it stands now, the risk remains low and we are in a Bull market. There is a rotation in leadership away from the more defensive issues as the Portfolio Thermostat’s indicators are adjusting some of our ETF holdings to reflect the current environment. We should remain in a relatively stable and positive market environment until the CVI (volatility) begins to increase.

Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom Hardin, Chartered Market Technician (CMT), makes all the final decisions on all investment and portfolio management decisions for Canterbury Investment Management. Tom has more than 30 years experience in the investment management industry and has broad breadth of knowledge. He is known as an innovator, educator and been revolutionary in the advancements in 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.