The Equity Markets are Beginning to Look More Positive

The Equity Markets are Beginning to Look More Positive

Posted on May 27, 2014

Canterbury Portfolio Thermostat - Weekly Update – 05/27/14

Market State 2 (51 trading days) - Long-term: Bullish; Short-term: Neutral/Bullish. The Portfolio Thermostat’s short term indicators are all positive except for those related to volume. Volume has been generally low and has decreased since mid April while the S&P 500 has trended higher. The overall market environment has not been able to shift back to Market State 1 because the volume indicators remain negative and have not confirmed the new high.

Canterbury Volatility Index is at CVI = 52: The CVI (volatility) declined down 1 point for the week. The CVI continues to decline which reflects an extended period of low and declining volatility (Bullish).

Overbought/Oversold indicator:
Our overbought/oversold indicator is currently 60% oversold (slightly short term bullish) up from the previous week at 54% oversold (short term Neutral). As a point of reference, 95% to 100% oversold would make this indicator bullish.

Market Comment:
The S&P 500 registered a new all time high on Friday. Don’t get overly excited because it is only up 3.68% through last Friday. The Dow is up 1.18%; the NASDAQ is -0.03% and the Russell 2000 is down -2.77% year to date. The intermediate US Treasury Notes are up 2.13%. These market indexes could just as easily been down -2% to -5% as up 2% to 5% for the year. In other words, we have only experienced the normal expected short term market noise typical of a bull market.

All that said, it appears that most global equity markets are likely to see an advance from where we are today.

  • The NASDAQ and most other growth oriented indexes are beginning to show some life. The breadth of the market is improving.
  • We have seen five months of consolidation following the big gains last year, and particularly in the fourth quarter of last year.
  • Even though the S&P 500 has hit a new high, investor sentiment is still neutral. The American Association of Independent Investors survey (AAII) is indicating a high percentage of investors on the side lines (meaning cash available for future investment). Last week’s survey showed only 30.4% bullish, 43.2% neutral and 26.6% bearish.
  • Volatility is very low and most all of the Thermostat’s indicators are currently bullish.

 

Bottom Line:
All of our portfolio’s Exchange Traded Fund (ETFs) holdings are rated either as a buy or a hold based on the Portfolio Thermostat’s algorithms. In fact, our Volatility Weighted Strength Indicator shows every one of the current portfolio’s positions ranked above the S&P 500.

Just be aware that the market’s extremely low volatility and tight trading range increase the probabilities of one of those "one day outliers” for the S&P 500. Meaning a one day, up or down move, in the 2% range. If such an event occurs, it should not have a negative effect on the current bullish market outlook.

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.