Market Continues to Show Strength

Market Continues to Show Strength

Posted on May 07, 2019
Market State 1 (Bullish) – The S&P 500 remains in Market State 1 after putting in a new all-time market high last Tuesday at 2945.  It might be difficult to remember, but just 4 months ago, the US stock market was down 20% from peak value.  Since then, the market has rallied, on declining volatility (CVI) to surpass its old October 2018 high.
 
Canterbury Volatility Index (67 Day) – CVI 58- Volatility, as measured by the Canterbury Volatility Index (CVI), remained flat last week falling just 2 points.  Volatility indicators remain positive, as CVI has declined over 60 points in the last 4 months.  Falling volatility is a bullish characteristic.
 
Comment
 
Throughout the recent rally, the breadth of the US stock market has remained strong.  There are many stocks, rather than just a select few, that have pushed the market (S&P 500) to a new high.  It would be concerning to only see a few big names pulling the market upward.  This is not the case.  As shown by the Advance/Decline line, which compares the number of stocks going up versus down, many stocks are participating in the rally.  The A/D line has continued to put in new highs over the last month, finally pushing the S&P 500 to follow suit.
 

Currently, 7 out of 10 US sectors are in Bullish Security States.  Real Estate is currently in Security State 6, which was caused by a spike in CVI.  Security State 6 most commonly goes back to being in a bullish security state.  Healthcare is currently behaving more bearish, but is mainly being dragged down by pharmaceuticals.  Energy has been the worst performing sector and is currently in Security State 8.
 
Typically, in bull markets, we would expect to see Technology and Discretionary leading the market, showing investors are willing to take more “perceived risk.” This is true today.  Technology is the #1 ranked sector according to Canterbury’s Volatility-Weighted-Relative-Strength (VWRS).  Discretionary is the #2 ranked sector on a risk adjusted basis.
 
Bottom Line
 
Christmas Eve feels like a really long time ago.  The Market is back above its October high, and many stocks are participating in the rally.  Sectors like Technology and Discretionary are currently leading the way on a risk-adjusted basis. Many broad sectors, and subsectors are bullish.  While we could always be prone to single outlier days, since volatility is declining, there are many positive factors at play in the stock market.
 
Markets will go through all different kinds of environments, and no two will be identical.  Sectors that will outperform in a bull market, may underperform in a bear market and vice versa.  By having an Adaptive Portfolio Strategy, the portfolio can adjust its holdings and rotate its allocation to adapt to the everchanging 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.

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