Only Own Securities That Display Bull Market Characteristics

Only Own Securities That Display Bull Market Characteristics

Posted on July 15, 2013

Market State 1 (Last 5 trading days) = Bullish/Rational - The Portfolio Thermostat shifted to the current Market State at the close on Monday, July 8th. Market State 1 is the most predictable of the Portfolio Thermostat’s 12 Market States (environments). The risk, while in MS 1, is typically around -2% to -4% from the previous market peak. The latest S&P 500 peak was last Friday at 1680.

Canterbury Volatility Index (CVI) = 68
: The CVI was down 1 point for the week and down 5 points, from the previous peak at 73 on June 26th. The S&P 500’s volatility has been low and continues to decline. A CVI below 75 is typical of a low risk/Bullish stock market.

Our overbought/oversold indicator at 99% overbought. A reading over 95% indicates that the U. S. stock market is short term over extended. In addition, the S&P 500 is up about 4.5% so far this month (up almost 3% last week). Plus, the S&P 500 has a current winning streak that has lasted for the last seven days in a row.

Market Update:
The S&P 500 and NASDAQ 100 closed last week at a new high for the year. The US stock market has been the best performer of all countries for the year except Japan and Japan has been pretty much flat since its -4% one day drop on May 25. It would be normal and healthy for the US market to take a little time to catch its breath at this point.

As strong as the US equity markets have been, the same can’t be said of most other major market investment classes. The 20 year Treasury bond ETF (symbol TLT) is down about -11% year to date. The emerging market index (EEM) is down over -12% YTD. The gold ETF (GLD) is down over -20% so far this year.

The Portfolio Thermostat model has benefited from the decline in some market classes. Specifically, our model currently owns the inverse US Treasury bond and inverse emerging markets ETFs. Both of our positions (TBF and EUM) are up from where we bought them.

Bottom Line:
So far, 2013 has been a very good year for the US stock market, but has been difficult for many of the other major market classes. As a result, most investors who rely on "traditional” fixed percentage asset allocation and broad diversification have not done very well. For example, a conservative 50/50 stock and bond allocation is +3.42 % through last Friday. Anyone who has been an owner of most international markets or most commodities would have done worse than a 50/50 allocation.

The lesson learned, this year, is that a fixed percentage asset allocation and broad diversification among many different asset classes does not necessarily equate to a safe and efficient portfolio.

Successful portfolio management is not an art or a subjective exercise. Portfolio management requires scientific rules based process that should be at least a dynamic as the markets themselves. Programmed rules and processes can be tested to give statistically valid evidence to support whether or not the model has predictive value. The goal is to benefit from long term compounded returns by maintaining low and consistent portfolio volatility through all market environments – Bull or Bear.

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.