NASDAQ Showing Strength

NASDAQ Showing Strength

Posted on March 18, 2019
Market State 8 (Transitional) – The S&P 500 continues to be in a Transitional Market Environment.  The current environment has decreasing volatility, coupled with negative short-term supply & demand indicators. Market State 8 is characterized by negative long-term indicators, decreasing volatility, and negative short-term supply & demand indicators.  
 
Canterbury Volatility Index (CVI 77) – Volatility, as measured by the Canterbury Volatility Index (CVI) fell 3 points last week.  This marks the tenth consecutive week of declining volatility following a period of high CVI.  CVI reached a peak value of 129 back in the first week of January but has now declined to CVI 77.  Canterbury’s short-term CVI, a 10-day volatility reading currently measures CVI 49 but has been as low as CVI 33 during this run of declining volatility.
 
Comment
The S&P 500 rose +2.9% last week following a slight pullback of -2% to begin the month of March.  The NASDAQ was up +3.9% for the week, while the Dow was only up +1.6%.  According to relative strength lines, which compare the strength of one security in relation to a benchmark security, the NASDAQ is now outperforming the S&P 500.  Historically, market conditions are more favorable when the NASDAQ is outperforming the S&P 500, indicating that investors are willing to take on more risk.
 


Conversely, the Dow Jones Industrial Average has been falling in Relative Strength compared to the S&P 500:
 


Historically, this is the ideal lineup for the 3 major US indexes.  We want the NASDAQ to be leading the S&P 500, and the S&P 500 to be leading the Dow Jones. We can see that prior to the initial drop in October, the reverse was true.  The NASDAQ 100 was lagging the S&P 500, which was lagging the Dow Jones.  This was leading into the initial volatility spike in October, and continued into the market correction in December.



Bottom Line
The S&P 500 remains in a Transitional Market State.  Many areas are starting to show signs of strength.  Utilities and Staples are both in Bull Markets, several international countries, like Brazil are also showing bullish, risk-adjusted strength.  The NASDAQ is outperforming the S&P 500, and the S&P 500 is outperforming the Dow.

Markets are dynamic and will go through many different environments. Some will be bullish; others bearish; and some in between (transitional).  In order to navigate everchanging market environments, we need an adaptive portfolio process, like the Canterbury Portfolio Thermostat.
 
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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