The Market's Leadership is Narrowing

The Market's Leadership is Narrowing

Posted on July 10, 2017
Market Update 7/10/2017
 
Macro - Market State (Based on the S&P 500)
Market State 2: Bullish/Rational (8 trading days): The S&P 500 closed Friday, down just -1.2% off its June 19th high at 2453.46. It is normal to see back and forth rotations between Bullish - Market States 1 and 2 over relatively short periods of time. This is especially true when the market is stuck in a tight trading range.
 
Canterbury Volatility Index (CVI 39): Volatility has been picking up a little bit but remains at a historically low level. The slight increase in volatility was due to a slight increase in the random daily fluctuations.


Source: AIQ
 
Comment:
The market is continuing to digest (consolidate) the S&P 500’s 350 plus point advance that began a couple days before the Presidential election. The market has been moving sideways for some time now. In fact, the S&P 500 is only up about 30 points, less than 1.5% since March 1st of this year. That said, the average stock is performing worse than the S&P 500.
 
The S&P 1500 advance/decline line (A/D Line) has been declining vs. the S&P 500 index. The Advance/Decline line is typically known as a “long term indicator.”  The A/D line measures the breadth of the market by the number of stocks going up versus the number of stocks going down. In other words, the A/D line answers the question: Is the rising tide of the market lifting all ships (meaning most stocks) or just a few? The answer: Just a few.
 
Currently 17%, of the 1500 stocks are within 2% of their highs. On the other hand, 25% of the stocks are down -20% or more from their highs. This means that 25% of stocks have already experienced a 20% plus decline from the peak. An advancing or sideways market combined with a declining A/D line is referred to as a “negative divergence.” The rule of thumb states that this advance/decline “negative divergence” should last for 6 months, or more, before there is a meaningful negative impact on the overall market.
 
Bottom Line:
The A/D negative divergence system is continually being monitored. As for now, we remain in a bull market. Meaning, the risk of more than a normal bull market correction remains low. Should the market environment begin to change, then the Portfolio Thermostat’s operating system will make the proper adjustments in its ETF holdings.

 
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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