The S&P 500 Registered 3 New Highs Last Week

The S&P 500 Registered 3 New Highs Last Week

Posted on March 10, 2014

Canterbury Portfolio Thermostat – Weekly Update 03/10/2014

Market State 1 (4 trading days) - Long-term: Bullish; Short-term: Bullish but the market is short term over extended: The period following a shift from Market State 2 to Market State 1 can begin with a flat period or a pullback. Upgrading from Market State 2 to Market State 1 can burn up a lot of short term buying power. As a result, it is common to see a short term correction following the upgrade which will allow the market to digest the previous gains.

Canterbury Volatility Index is at CVI = 58: The market’s volatility was unchanged for the week. A volatility reading below CVI 75 is considered to be a low risk environment. Low volatility is a primary characteristic of a healthy Bull market. Just be aware that there is a higher than normal probability of a one day "isolated” market move in the 1.5% to 2% range, up or down. Such a move, if it occurs, is normal for the current environment.

Overbought/Oversold indicator: Our overbought/oversold indicator closed Friday at 93% overbought (short term Bearish). A reading over 95% is considered to be an "extreme level.” The market has been overbought (short term overextended) for over 3 weeks now. A normal short term Bull market correction is likely.

The stocks-only Advance Decline Line hit another new high last week: Long-Term - Bullish. The A/D line reflects the breadth of stocks moving up with the market. This is another important characteristic of a long term Bull market. The new high in both the S&P 500 and the A/D confirms that the primary trend is healthy and remains intact.

Market Comment: The S&P 500 was up almost one percent last week. It put in a new high on February 28th followed by new highs on 3 of the last 5 days. Every new high receives a lot of fanfare in the financial media even though the 3 new highs have accounted for a total of only 4.13 points (less than 0.5%). The current 3 day advance could easily be wiped out in one day.

The U.S. Treasury bond Exchange Traded Fund (ETF) symbol TLT was down -2.88% during the last 4 trading days of last week. On the other hand, Investment Grade corporate bonds, symbol LQD remains a hold, while the treasury bonds are currently a sell rating. We also own 5 of the highest rated S&P 500 Sectors. Each of our Sector ETF’s are ranked in order of its volatility weighted strength: 1) Health Care Sector (XLV); 2) Basic Materials Sector (XLB), 3) Industrials Sector (XLI) 4) Technology Sector (XLK) and 5) Utilities Sector (XLU). Our Portfolio model will typically hold 3 to 5 of the 9 S&P 500 Sector ETFs during Bullish Market States. The Model may have no Sector holdings when in Bearish Market States.

Bottom line: The Bull market continues. Expect the normal "noise” in the market. Any pullback from here will be surrounded with a lot on doom and gloom talk. A short term correction is needed and would be healthy for the US stock market. Our Portfolio Thermostat will adjust its holdings to match the changing market environments. It will issue individual Sell signals when a security holding no longer meets the qualifications to help maintain stable portfolio volatility. The Portfolio Thermostat will then identify the best ETF replacement from our universe of about 130 (ETFs). The primary objective of the Portfolio Thermostat is to optimize the portfolio to produce the highest return with the lowest risk. Today, we have all the tools and innovative securities to manage and benefit from any market environment – Bull or Bear.

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.