Whipsaws

Whipsaws

Posted on December 07, 2011

What a difference a week makes. On the day of my last blog, Tuesday 11/24, the S&P 500 registered a short term bottom at 1158.65. The market had declined -9.84% in just 19 days.

This is a paragraph from my last blog: Currently the market is oversold, meaning it has dropped so fast that a “Bear market rally” is probable. Any such rally, if it occurs, will probably be measured in days and should be followed by further decline.

From the day of my blog, the S&P 500 has now advanced +8.45% in only 6 days! So, does this mean we are in a new Bull Market?

Investors tend to be very emotional during Bear markets. Emotional investors cause big market swings, both up and down. On Wednesday, 11/30 (one day) the Dow was up +490.05 points or +4.24%. An advance of such proportions sounds good but is definitely not normal for a Bull market. Large one day advances are more typical of Bear markets. For example, the Dow was up +936 points on 10/13/08 and was up +889.35 points on 10/28/08 (11 days later). In just two weeks later, the Dow was at the low for the year and continued to get worse.

Since 1940, we have experienced 41 one day rallies of more than +4%. Of the 41 +4% days 37 occurred during Bear markets and 2 occurred immediately after large one day declines. I would not bet on a new Bull market based on last Wednesday’s +4.24% advance.

The market has gone from extremely over-sold to over-bought in a week. We remain in a trading range. For now daily news events are driving short term moves in the markets. Unless an unexpected piece of good news extends the current rally, the probabilities favor a pull-back.

Our Canterbury Portfolio Thermostat Matrix, shifted to Bearish (Market State 11*) on 11/30/11. Our Matrix has been in a Bearish Market State since 8/4/11.

We will continue to focus on portfolio stability and should benefit from market declines. We will continue to maintain our current defensive holdings until we return to one of our six Bullish Market States.


*S&P 500 Market States (market environments)

Market State 12 = Bearish: 8/04/11 through 10/20/11

Market State 11 = Bearish: 10/21/11 through 11/08/11

Market State 12 = Bearish: 11/09/11 through 11/21/11

Market State 10 = Bearish: 11/22/11 through 11/30/11

Market State 11 = 12/1/11 Bearish through today

Canterbury Volatility Index (CVI) 145 = Bearish

The Canterbury Portfolio Thermostat identifies 12 different Market States. Of the 12 Market States, 6 are Bullish Market States, 4 States are Bearish, and 2 States tend to precede a transition to a Bearish Market State, meaning caution.

Please call me for a detailed description of the Portfolio Thermostat Matrix.

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.