Lots of Fireworks but No Bang

Lots of Fireworks but No Bang

Posted on January 21, 2015

Canterbury Portfolio Thermostat Weekly Update 1/20/2015

Market State 2 (18 days) Long Term (Bullish) Short Term (Neutral): The Portfolio Thermostat is composed of 12 different Market States. Each Market State represents a different market environment. Of the 12 Market States, 5 are Bullish, 4 are Bearish and 3 are Transitional.

 

The Canterbury Volatility Index (CVI) closed at CVI 72 (Bullish). Volatility, as measured by our CVI, had no increase versus the previous week’s CVI 72 reading.

The last 5 trading days (ending on Friday) experienced some wild intraday price swings but the net price change was only a little different from the previous week. The S&P 500 finished down only 1.2% after all the fireworks finally cleared.

 

The Portfolio Thermostat’s volatility indicators does not put emphasis on intraday fluctuations. For the most part, market noise has no meaningful impact and is primarily caused by knee jerk reactions to short term news events.

 

The CVI is based on the “closing value” of the S&P 500 over the previous 67 trading days. The index is exponentially weighted for the purpose of putting more emphasis on the most recent price action. A CVI reading of 75 or lower is considered to be a “safe zone” for the market, which means that the downside risk should be limited to normal Bull market pullbacks or corrections (5% to 10% from the previous peak in price).

 

The Overbought/Oversold Oscillator is now only 30% overbought (bullish/neutral).

 

The S&P 500 closed down 1.2% for the week.

Market Comment:

The Portfolio Thermostat model is currently holding 13 ETF positions. Ten of the thirteen ETF’s are currently rated as outright buys and 3 are rated as holds. There continues to be a rotation in leadership toward the more defensive areas of the markets. Real estate, Healthcare, Utilities, Consumer Staples, dividend paying stocks and most bonds are near the top of the list.  On the other hand, most commodities and large cap international and emerging market equities are at the bottom of our rankings.

 

Bottom Line:

Don’t get caught up in negative economic talk and short term news flashes. The talking heads are not privy to information that is not already factored into the current market price.

 

Who knows what world events will occur in the future or how those events will affect the markets. We only know what the market environment is now. We also know that markets are counterintuitive because they are driven by the Law of supply and demand. Investors tend to be optimistic at the top and pessimistic at the bottom. There is an old saying; Bull markets will crawl a wall of worry. Successful investment programs are built on applied scientific principles founded on defined rules and evidence based results.

       
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.