Weaker Markets Play Catchup while Market Leaders Take a Breather

Weaker Markets Play Catchup while Market Leaders Take a Breather

Posted on September 10, 2018
9/10/18
 
Market State 1- Bullish (9 days): The current market environment is positive but remains a little extended following last week’s slight downturn.
 
Canterbury Volatility Index (CVI 44): Volatility has now reached an extremely low level (CVI 45 or lower = extreme low). One day outliers of 1.5%, or greater, are likely when CVI is below 45.
Canterbury Portfolio Thermostat - Efficiently Score as of 9/10/18 = 100 ES
The Portfolio Efficiency Score ranges from 0 to 100
Efficiency Score 100 to 70 = Efficient
  • (Risk=-Low -8% to -12% decline from the highest peak value).
Efficiency Score 69 to 60 = Transitional
  • (Risk = High)
Efficiency Score 59 to 0 = Inefficient
  • (RISK = High)
 
Canterbury Portfolio Thermostat - Canterbury Volatility Index (CVI) CVI 36
The Portfolio Thermostat’s volatility should be below CVI 70
 
Canterbury Portfolio Thermostat - Benefit of Diversification = 37%
The percent difference between the average volatility risk of the portfolio’s individual holdings verses the risk of the risk of the total portfolio, that benefits from a risk reduction from the benefit of the diversification of noncorrelated holdings.
  • The targeted “optimum portfolio efficiency,” during a bullish Market State environment is between 25% and 39% Benefit of Diversification.
  • The targeted “optimum “portfolio efficiency” during a transitional or bearish Market State environment is between 40% and 60% Benefit of Diversification.
 
Canterbury Portfolio Thermostat – Maximum Percentage Decline from the Peak Value
Maximum decline experienced = (10.51%) over the last 6 years. A +11.74 % gain would bring the portfolio back to the peak value.   Currently a +2.84% gain would register a new high for the Canterbury Portfolio Thermostat.
 
Limiting portfolio declines (called drawdowns) is a key to successfully achieving the geometric compounding of returns over a lifetime. Limiting portfolio declines to a normal correction of about 10% is paramount for a successful long-term investment program.
 
Comment:
Last week I wrote: “The current market environment remains positive but is getting extended. A short-term correction could be coming soon.” We saw a shift in the market’s leadership last week. The Dow only declined 0.2%, while the S&P 500 was down 1.0% the NASDAQ was off 2.6% and the EAFE (large Cap Intl.) 2.9%. The broader market was also much weaker than the Dow. The Dividend paying stocks were actually up for the week.
 
The likelihood of a correction continuing in the areas that have performed well this year could continue over the next few weeks, although it shouldn’t be anything beyond a normal pullback or correction. Some of the growth-related areas remain a little extended.
 
Bottom Line:
The S&P 500 has been one of the strongest of all the major market indexes. It is interesting to note that last Friday it close at it closed 2872, within a point from its high on January 26, 2018 at 2873. 
 
My point is that there are just a few areas that have done exceedingly well this year like Small Cap growth along with the FAANG stocks (Facebook, Amazon, Apple, Netflix and Google). It would be normal, and healthy, for the hot areas of the market to take a breather while the weak play a little catch up.
 
  
 
Canterbury Investment Management: Tom Hardin

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