Sometimes the Markets do What is Expected

Sometimes the Markets do What is Expected

Posted on April 07, 2014

Canterbury Portfolio Thermostat – Weekly Update 04/07/2014

Market State 2 (17 trading days) - Long-term: Bullish; Short-term: Bearish

Canterbury Volatility Index is at CVI = 55: The CVI was down 1 point for the week. The caveat is that Friday closed with a -1.25% decline causing the CVI to increase from 53 on Thursday to close Friday at CVI 55. Volatility remains in the safe zone which means that the market should be limited to normal fluctuations (normal noise). A volatility reading below CVI 75 is considered to be a low risk environment.

Overbought/Oversold indicator:
Our Portfolio Thermostat overbought/oversold indicator closed on Thursday at 94% overbought (short term Bearish). Friday’s decline helped to slightly bring down the extreme overbought level. The indicator finished 86% overbought (Neutral/Bearish).

Market Comment:
Sometimes the market does what is expected. The indications were that the first days of the new quarter would open up. Quote from the previous week’s Portfolio Thermostat – Weekly Update: 3/31/14: A move higher is likely this week. The last days of the ending quarter and first days of the new quarter have tended to be up. This has been the case since the beginning of 2012. Assuming that the market does advance, it is important to see growth to begin to outperform value. (That did not happen. Value beat growth, big time, at the end of last week)

One of the Portfolio Thermostat’s internal indicators monitors the relative strength between the Russell 1000 Growth Index and the Russell 1000 Value Index (it shows which of the two is performing better). We have been seeing a shift away from Growth toward Value over the last two months. The gap in performance between the two styles is getting wide. Value stocks tend to be more reflective of a defensive market environment. It will be difficult for the Growth stocks in particular to move much higher from here. Value has been so strong that it is getting to be an overextended and may need a rest.

The S&P 500 is much closer to the high end of its range than the low. The short term potential appears to be limited. Most major US equity markets are stuck in a short term trading range (sideways). Here is a comment from the Portfolio Thermostat Weekly Update on 03/24/2014: Value stocks have been outperforming growth stocks which are not a good sign for the very short term. At this point, a short term pullback in the market, on low volatility, would be healthy. (This continues to be the case as of today).

The good news is that the S&P 1500, stocks only, Advance Decline line is holding up great! In fact, it hit a new high on April 2nd which is reflective of good market breadth and a healthy long term Bull market. Also, most of the European markets are performing well.

Portfolio Thermostat Activities:
The Portfolio Thermostat has made several rotations, in its Exchange Traded Fund (ETF) holdings, to reflect the changing market environment. In fact, 9 of the 15 ETF’s that were held in the portfolio on 12/31/13 have been sold and upgraded to reflect the changing market environment.

Bottom Line:
Expect more, than the normal, negative talk from the financial media. The market will most likely move sideways to down from here. Volatility is low and our intermediate and longer term indicators remain Bullish. We are experiencing the normal market noise and a continued consolidation that tends to follow a big advancing period like we had in the 4th quarter last year.

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.