Sometimes Erratic Markets Do What is Expected

Sometimes Erratic Markets Do What is Expected

Posted on March 26, 2018
Market Update 3/26/2018
 
Market State 4: Long term - Bullish/Volatility-Was Declining Subject to One Day Outliers/Short Term – 95% Oversold - Bullish:
Based on Canterbury’s studies on our Market State environments, Market State 4 is the rarest. The last time we were in Market State 4 was December 2015. Market State 4 has only occurred 18 times since 12/31/1949 for a total of only 136 days, during the more than 16,000 trading days observed.
 
Market State 4 was typically followed by one of the other bullish Market State environments. Of the 18 events, 14 shifted to another one of the bullish environments while 3 events moved to Transitional Market State 6 and 1 turned into a Bearish market environment.
Canterbury Volatility Index (CVI 90) – Thursday and Friday both counted as one daily outliers. Interestingly, both days fell just short of triggering the Portfolio Thermostat’s Velocity of Volatility indicator.
Comment:
The S&P 500 was down -2.1% Friday and -2.5% Thursday. The markets continue to deal with the repercussions from the break in the long period of extremely low volatility.
Last Monday’s (March 19) Weekly Update’s title summed up the wild ending: Low Volatility Tends to be Followed by High Volatility. Last week’s commentary was pretty much dead on. The following is an excerpt:
Three Key Points – Last Monday (Weekly Update) 3/19/2018
 
Point 1: The Market remains in a trading range with resistance at the previous market high of 2,875 and support at the previous February low of 2,580.  We should expect the market to remain in this trading range for a few months to come as the market goes through its stabilization process.
 
Point 2: The market is currently converging on its 100-day moving average and December’s area of congestion at a short-term support level of 2,685. This is our first level of support. Meaning, if the market breaks through the 2,685 support level and then fails to get back above the 2,685 level on a rebound, then the probabilities of testing the old low in the 2,580 – 2,600 area would be high.
 
Point 3: More often than not, the 200-day moving average acts as a significant
level of support.  The market’s 200-day moving average has now converged near the low of 2,580.  This indication further confirms the lower level of support, lessening the likelihood of a break below this low.  Support Held at 2580


S&P 500 Chart: Support at 2580 HELD
Advance/Decline Line DID NOT hit new LOW 


 Source: AIQ
 
Bottom Line:
The S&P 500 remains in a trading range between 2,875 and 2580………..Bullish
Market is 95% oversold (dropped too Low/too Fast)……………………...Bullish
NASDAQ 100 Relative Strength remains strong than the Dow…………...Bullish
S&P 500 experienced a “market correction” Defined as: -10%........Normal Noise
Volatility is high - string outlier days (1 day 1.5% or more) Expected…...Bearish
 
Most major equity indexes will most likely remain in a trading range for months to come. Adaptive Portfolio Strategies like the Canterbury Portfolio Thermostat should benefit, on a risk adjusted basis, in current market environment.
 
Canterbury News:
The National Association of Active Managers named the Canterbury Portfolio Thermostat as a FINALIST is their “Shark Tank” strategy competition. I will be presenting to a panel of peers in Orlando, Florida on April 25th. I will keep you posted on the result.
 
 
 
Canterbury Investment Management: Tom Hardin

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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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