Market Leadership and the Adaptive Process

Market Leadership and the Adaptive Process

Posted on September 05, 2017
 9/05/2017
 
Market State 1 Bullish/Rational (2 trading days): The S&P 500 had another good week, ending up +1.4%. The Dow was up +0.8% while the NASDAQ was up +2.7%. One characteristic of a healthy bull market is when the NASDAQ is outperforming the S&P 500 and the S&P 500 is beating the Dow. This was clearly the case last week.  Notice how in the following chart, the Relative Strength line (green line) is positive sloping.  This indicates the NASDAQ’s strong performance relative to the S&P 500.
*Source: Bloomberg


Source: AIQ

Canterbury Volatility Index (CVI 39):  The CVI declined 2 points for the week. Low and decreasing volatility is a primary characteristic of an efficiently traded/low risk market environment.

Comment:
The U. S. Equity markets are slightly overbought short-term and are pushing against short-term resistance at the old highs. The most likely direction from here is a sideways trading range.


Source: AIQ

The Health Care Sector continues to show strong leadership for the year.  Healthcare was the worst performing sector for 2016, but is the second best performing sector so far in 2017.  The sector is up +17.6% year to date. Source: Sector Tracker


Source: AIQ
 
Conversely, the Energy Sector was the strongest sector in 2016, but has been the weakest so far this year (-16.1%). Source: Sector Tracker


Source: AIQ
 
Bottom Line:
All liquid traded markets and securities will experience both low-risk (bullish) environments and high-risk (bearish) environments. The antiquated process of buying and holding for the long run will expose investors to a wide range of fluctuations and may not provide high, risk-adjusted returns. One must have a testable, rules-based process capable of distinguishing between bearish and bullish environments.  By using such an adaptive process with statistically relevant results, investors may achieve peace of mind in knowing that they have an answer for bear market environments.

 
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.