The Sleeping Bull was Awakened

The Sleeping Bull was Awakened

Posted on June 09, 2014

Canterbury Portfolio Thermostat - Weekly Update – 06/9/14

Market State 1 (2 trading days) – Long term: Bullish; Short term: Bullish. The Portfolio Thermostat’s short term indicators have been Bullish for over 3 weeks, with exception of the volume indicators. Volume has been low. Several of the major market indexes broke out to new highs accompanied by higher than the average volume. The Thermostat’s Market State finally shifted to Market State 1 after languishing almost 60 trading days in Market State 2.

Please keep in mind that an upgrade in the Market State environment will typically exhaust some of the short term demand. It is normal to see a small pull back or a period of sideways movement to digest the most recent gains.

Canterbury Volatility Index is at CVI = 48: The CVI (volatility) declined 3 points for the week. The volatility is at the lowest level, as measured by the CVI, since Feb. 22, 2007. A low level of volatility reflects a low risk market environment and is a primary characteristic of a healthy Bull market.

Overbought/Oversold indicator:
Our overbought/oversold indicator is currently 94% overbought (short term Bearish). As a point of reference, 95% to 100% overbought is considered to be an extreme level. As discussed in the first paragraph, it is normal for the markets to indicate a short term overbought condition following an advance large enough to produce an upgrade in the Market State environment.

Market Comment:
The June 3rd Portfolio Thermostat Update was titled; A Sleeping Bull Market. Last week, the sleeping Bull was awakened. The S&P 500 was up 1.3%, the NASDAQ 100 beat the S&P up 1.8% and the Russell 2000 finished the week at up a whopping 2.7%. A sign of a healthy Bull market is when small cap stocks beat the NASDAQ and the NASDAQ beats the larger cap S&P 500 index. This is a sign of wide market breadth.

Bottom Line:
The US equity markets are a little short term over extended. A small correction or sideways period should set us up for another move higher. Our portfolio currently holds 14 Exchange Traded Funds (ETFs). Of those, 11 ETFs are rated as outright Buys and 3 are rated as Holds.

Overview of the Portfolio Thermostat Market States:

  • Long-term indicators are used to identify the primary trend of the market or security.
  • The proprietary Canterbury Volatility Index (CVI) and related volatility indicators evaluate the degree of rationality in the current market environment.
  • Short-term supply and demand indicators determine which portfolio adjustments are to be made and indicate the strength of the current Market State.

 

The Portfolio Thermostat process identifies 12 individual Market States, which include

  • 5 Bullish (rational) Market States
  • 4 Bearish (irrational) Market States
  • 3 Transitional Market States (which tend to precede a change from Bullish to Bearish, indicating caution)

 

Each of the 12 Market States is assigned a percentage allocation of the 2 Groups

  • Group 1 – Global Equities
  • Group 2 – Bonds & Alternatives

 

The portfolio’s assets are allocated to each of the two Groups and then used to purchase the strongest ETFs within each Group. Every ETF in the Portfolio Thermostat universe is assigned a "Security State” ranking that represents a Buy, Sell, or Hold rating. New purchases are determined by choosing the ETF with the highest Security State ranking. An ETF is sold when its Security State ranking changes to a Sell or when a shift in the Market State requires an adjustment in the percentage allocation of the two Groups. The number of holdings and the size of each holding are determined by the existing Market State and the subsequent Group percentage allocation.

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.