The Breadth of the Market Leadership is Weakening

The Breadth of the Market Leadership is Weakening

Posted on July 27, 2015

CanterburyWeekly Update

July 27, 2015

Market State 1 (7 Days): Long term: Bullish – Short Term: Bullish/Neutral.

Last week I noted that the first few days of MS 1 can be somewhat uneventful – “It would be normal to see a period of consolidation.” The reason for the potential pullback is that a lot of buying power was burned to fuel the previous 4% advance that led to the upgrade to MS 1.

Canterbury Volatility Index (CVI): CVI 57 –The market’s volatility remained stable in the face of last week’s declining environment and declined only 1 point for the week. Our data shows that the systemic (market-specific) risk has been limited to a normal market pullback, which is a correction of -5% to -10% during Bull Market States 1 through 5 when volatility is at CVI 75 or lower.

The Overbought/Oversold indicator improved slightly from the previous week’s 92% Overbought condition (short-term bearish) to 62% Overbought last week (short-term bearish side of neutral).

Market Comment:

The Dow Jones Industrials and S&P 500 both closed down -2.9% and -2.2% respectively last week. Through last Friday, the Dow is down -1.4% and the S&P 500 is up 1.0% year to date.

 

S&P 500 Index 7/24/2015

 

StockCharts.com

The S&P 500 has moved to the middle of its trading range, which spans from the point of Resistance to Support, back, with Resistance in the range of 2130 to 2140 and Support at 2040. David Vomund, my friend and fellow market technician, considers the stocks-only Advance/Decline line the best measure of the breadth of the market (representing how many stocks are going up versus down). Until recently, this indicator had been reflecting a rising tide that lifted many ships, so to speak. This is no longer the case. Many stocks are now at new multi-month lows. In fact, 30% of the 1500 S&P stocks are 20% or more off their yearly highs.

The Advance/Decline ratio is considered to be an early indicator of future market direction. It tends to lead the major market index by several months. Keep in mind, though, that the current trend in the A/D line could just be representing a bump in the road. Time will tell. For now the, the S&P 500 and NASDAQ 100 are being carried by a few, very strong large cap stocks, like Google and Amazon.

The strongest sector last week was Consumer Discretionary and the weakest were Basic Materials and the Energy sector. The Healthcare sector has remained at the top of the Portfolio Thermostat’s Volatility Relative Strength ranking all year. The worst style/index YTD has been Small Cap Value and the best has been Small Cap Growth.

Bottom Line:

The Portfolio Thermostat has several “early warning” indicators built into its algorithms. At this time, we are just beginning to see some very early cracks in the wall of the US equity markets. There has been more short term damage done than what is reflected in most major market indexes current values. It will take more time and further confirmation to determine if there will be a significant change in leadership among our universe of over 170 diverse Exchange Traded Funds (ETFs).

In any event, the Portfolio Thermostat model will make the necessary adjustments needed to maintain our portfolio of ETFs in one of the 5 Bull Market States. All traded markets and securities will eventually experience bull and bear market periods. The Portfolio Thermostat’s primary objective is to adjust its holdings to move in concert with the dynamic markets and keep the Canterbury portfolio in a Bullish Market State regardless of the Bullish or Bearish nature of the markets.

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.