The Equity Markets are Improving but Expect a Trading Range

The Equity Markets are Improving but Expect a Trading Range

Posted on March 06, 2018

Market State 6 is a “Transitional” environment.  A move to a Transitional-Market State 6 generally occurs during one of the Bullish Market State environments and typically begins with a spike in volatility and a sharp short-term decline.  There are two primary outcomes for a shift from a “Bullish” Market State to a “Transitional” Market State 6:
  1. Most Market State 6 environments go back to being Bullish as volatility begins to decline back to normal conditions.
  2. Volatility declines are followed by another spike months later, followed by another decline. In other words, the Canterbury Volatility Index line will reflect a series of higher highs followed by higher lows in volatility. The market will continue to have frequent periods of high daily fluctuations as a shift to a bearish market environment ensues.
Canterbury’s internal operating system continues to monitor market changes on a daily basis.
Canterbury Volatility Index (CVI 89): Volatility is not as high as it was from early to mid-February. On February 2nd, the S&P 500 and almost all other major market equity indexes experienced a spike in volatility, triggering our Velocity of Volatility (V. of V.) indicator. The Portfolio Thermostat’s Market State will immediately shift to Transitional -  Market State 6 when the V. of V. is triggered and confirmed by a Sell signal in our short-term supply and demand algorithm.
February’s activity fits the classic example of what would be most likely to occur following an extended period of lower than normal volatility. Extreme low volatility is typically resolved by a short-term spike, in price, followed by a period of higher than normal volatility.
MS 6 is known for “shocking” complacent investors who don’t understand that markets are counter-intuitive. The “shock factor,” in the market will typically take a period to resolve. We believe the most likely scenario, from here, is for the S&P 500 to trade within the high and low range established between 2872 on 1/26/18 to 2581 on 2/8/18.

Source: AIQ
Most equity markets have likely seen their highs for the next several months. When the breakout occurs, the probabilities are that it will be to the upside. The market is substantially above its 200-day moving average and the stocks only advance decline line (number of stocks going up vs. going down) is not showing a negative divergence vs. the S&P 500 index. Bear markets typically begin following several months of a decline in the AD line vs. the S&P 500 index.
The Risk Analysis, on the Canterbury Portfolio Thermostat, has Been Updated.
It is our understanding that the Riskalyze program has updated the Canterbury Portfolio Thermostat’s risk score to 58. The change was due to a longer evaluation period.
Bottom Line:
The Canterbury Portfolio Thermostat is designed to maintain a risk level that is equivalent to a normal bull market correction (defined as a 10% decline from the peak.)  The thermostat also utilizes ETF securities that the advisor believes have substantial upside potential based on their bullish trading characteristics.”
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.