Canterbury has a proprietary process for rating/ranking various stocks, sectors, commodities, bonds, and alternatives. In last week’s commentary, we showed how the market’s sectors were aligned on a risk-adjusted basis. Here is an update to those ranks:
Source: Canterbury Investment Management. “CVI” stands for Canterbury Volatility Index. Risk Adjusted Rank is calculated using Canterbury’s Volatility-Weighted-Relative-Strength.
The Information Technology sector fell 5 spots in our risk-adjusted sector rankings. We should point out that the sector’s chart still looks good, but the sector saw a 12% jump in CVI (Canterbury Volatility Index) last week. This increase in the sector’s volatility can mostly be attributed to Nvidia’s fluctuations over the last few days. The sector’s 3rd largest stock experienced a roller coaster of emotion, with back-to-back down days of -4.3% and -2.9% followed by a whopping +16.4% day.
While Nvidia caused some increased sector volatility, the stock is also one of the big reasons that the sector has been strong. Nvidia is the best performing S&P 500 stock this year by a large margin. Surprisingly, the S&P 500’s second largest stock, Apple (representing 20% of the Information Technology sector), has lagged. According to our risk-adjusted rankings for S&P 500 stocks, Apple currently ranks in the bottom quartile. Keep in mind that this ranking factors in both a stock’s recent returns as well as its volatility.
Chart of the Week- Energy
For this update’s chart of the week, we will actually be going a little lower on our rankings list and taking a look at the Energy sector.
As shown in the table above, Energy ranks second from last relative to other S&P 500 sectors. The sector is currently in one of Canterbury’s four “bearish” market states. This means that from a technical standpoint, the Energy sector has higher volatility, and a negative trend. That being said, Energy may be looking to turn things around. Look at the chart and corresponding points below.
Source: Canterbury Investment Management. Chart created using Optuma Technical Analysis Software.
1. The Energy sector has been in a downward-sloping channel since its peak in September. This “channel” can be visualized the descending lines drawn across the sector’s lower highs and lower lows. A few days ago, Energy attempted to break out of this pattern. Ideally, this would be the start of a new trend.
2. The blue line is the security’s 200-day moving average of price; the green line is its 50-day moving average of price. While the 50-day moving average is below the 200-day moving average (negative), the sector’s actual price is above both moving averages (positive). It would be positive if Energy can hold the 200-day moving for support, and we eventually see the 50-day moving average cross above the 200-day moving average.
3. Energy is one of the more volatile market sectors right now. High and increasing volatility indicates higher risk. That being said, the lower third of the chart shows that the volatility of the sector is declining. For the recent price channel (see point 1), the sector’s volatility peaked in November and has been declining since.
The Energy sector may have a low ranking relative to other market segments, but it is showing signs of life. Our indicators haven’t had a technical “buy” on Energy since late September. If current trends continue, it may have a technical “buy” rating soon.
Bottom Line
It’s interesting that the top six ranked S&P 500 sectors, on a risk-adjusted basis, happen to be the largest six sectors in the market. Additionally, while Information Technology was the top ranked sector to begin last week, it is now near the middle of the sector rankings. This comes as a result of a rise in volatility, due to Nvidia’s moves last week. It’s also interesting that Apple happens to be ranked in the lower quartile of S&P 500 stocks.
The two weakest “looking” sectors right now are Utilities and Real Estate. Both are in the middle of downtrends. While large cap stocks as a whole have been strong, small cap stocks have fluctuated sideways since April 2022. Right now, the small cap index (Russell 2000), is battling it out with some overhead resistance and has experienced volatile moves in the last few weeks.
Right now, Canterbury’s proprietary portfolio strategy, the Canterbury Portfolio Thermostat, has exposure to the leading sectors like Information Technology and Communications. It holds a few individual stock securities that represent some of the higher ranked stocks from several different industries. We also hold a few inverse securities in some of the weaker market segments which provide risk management and should keep the portfolio’s volatility lower if volatility levels begin to increase.