Short Term Volatility Picking Up

Short Term Volatility Picking Up

Posted on December 22, 2014

Canterbury Portfolio Thermostat – Weekly Update: 12/22/2014

Market State 6-(2 days) Short term Transitional/Bearish: The Velocity of Volatility indicator produced a volatility alert Friday morning. The Portfolio Thermostat’s volatility algorithm is now negative, at least temporarily. We are in a rare type of a MS 6 environment in that the volatility that triggered the alert was Positive volatility (a volatile advance). Most volatility alerts come as a result of a sharp short term decline.

MS 6 is the most unpredictable of the 12 Market States.

The Canterbury Volatility Index (CVI) shot up to CVI 70 from CVI 59 the previous week. CVI 70 is still in a safe zone (safe zone is CVI below 75). That said a correction of 4% to 8% from the current high would be normal. The market is currently at a new high.

The overbought/oversold indicator is now 88% overbought (neutral/bearish). The trend is up so this indicator is likely to get even more overbought through the end of the year. The sharp advance last week was expected in light of the previous week’s extreme 97% oversold condition (bullish).

Observation:

The Dow advanced 738 points in just 4 days for a 4.3% rebound. The S&P 500 shot up 5% during the same time (Tuesday through Friday). Please read last week’s update. It describes why the US equity markets were set up for a rally.                                           

Bottom Line:

MS 6 does not demand automatic action. A short term Buy signal or a 10% decline in the CVI would move us out of MS 6 and indicate a more stable market environment.

The market is most likely to be up to sideways through the end of the year. All our ETF holdings look good.

Wishing you and your family all the best for a peaceful holiday and a prosperous New Year.

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.