Will the Market Close Higher or Lower at Year End?

Will the Market Close Higher or Lower at Year End?

Posted on January 07, 2014

Canterbury Portfolio Thermostat Weekly Update – 1/06/2014

Market State 1 (9 trading days) – long-term Bullish; short-term Bullish - Market State 1 is the most predictable of the Portfolio Thermostat’s 12 Market States (environments). The expected risk is typically in the -2% to -4% ranges, measured from the previous market peak. The most recent S&P 500 peak was registered on 12/31/2013 at 1848.36.

Canterbury Volatility Index (CVI) = 49 (rational market environment) The CVI was down 1 point for the week reflecting a slight decrease in volatility and a low risk stock market environment.

Our short term overbought/oversold indicator is currently 93% overbought (short term Bearish). As a point of reference, an overbought reading of 95% or higher is considered to be at an extreme short term level. This means that the market has experienced a good short term advance and will most likely move sideways or down to digest the most recent gains.

Market comment:
Last week I summarized the most likely course for what to expect short term: The US stock market may need a little time to digest its recent gains, which could result in a slow start for January, but there are no indications that the current Bullish stock market environment will be ending anytime soon.

The Bull market environment will remain intact until the Portfolio Thermostat’s algorithms indicate a change in the environment. In the meantime, expect normal periodic consolidations (pull-backs in price) as the equity market continues to work its way higher.

Observation:
The financial media tends to get on a loop by locking into a specific market question or issue. If I had a dollar for every time I have heard a reporter ask where the market will close at the end in 2014, I could buy myself a new Scotty Cameron putter.

Ok let’s think about the logic of what is being asked. Over the course of a year there are many unknown, high impact/low probability, events that will affect market pricing. How is it possible to make an accurate one year prediction when there are so many unknown variables? You can’t.

No one can predict where a market will be a year from now. What is even more concerning is that many investment experts will actually try to answer the question? They throw out a number and then eloquently try to justify their prognostication.

Of course a few experts will actually make the right prediction, based on blind luck, and will be crowned a "market guru” for the year.

Bottom Line:
Making portfolio management decisions should not be based on blind luck, hope, or by being fooled by the randomness. A total portfolio management solution requires a scientific process, based on logical and testable rules used to monitor the dynamic and ever changing market environments.

When will the market environment change? No one knows. What we do know is that the combination of securities that has maintained a stable and profitable portfolio during the current Bull market will look very different from the combination that will benefit from a different market environment. If we hope to be successful investors over the long run then will need to make timely and appropriate adjustments to match new market realities. Only then can we hope manage and benefit from any environment - Bullish or Bearish

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.