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Is the Market "Due" for an Outlier?

We are going to begin this update by discussing outlier days. As a reminder, an outlier day is any single trading day that is beyond +/-1.50%. Outlier days are an indication of market efficiency. Typically, in a normal “rational” market, the S&P 500 would be expected to experience about 13 outlier days in a calendar year. Bear markets, or irrational and inefficient markets will experience a larger amount of outlier days. Take last year as an example. 2022 was a bear market. As a result, the S&P 500 experienced 75 outlier days, which is about one outlier every three trading days—far more than what would be expected during any rational market environment.

So far in 2023, there have been 10 outlier days, which is still quite a few, but the frequency is nonetheless declining. The market’s last outlier day occurred 16 trading days ago. To put that into context, the longest stretch between outlier days in 2022 was only 11 trading days. This current stretch without an outlier day is the second longest so far this year (20 trading days is this year’s high-water mark). The decline in the frequency of outlier days is a positive for the market that coincides with declining volatility.

It would make sense that the market could experience another outlier day soon, either up or down. Short-term volatility (as measured by the 10-day Canterbury Volatility Index, or “10-day CVI”) is now the lowest it has been since November 2021. Declining volatility can be like the squeezing of a spring, in that you may eventually experience a release of pent-up pressure in the form of an outlier day.

Here are some additional comments regarding the S&P 500:

Source: Canterbury Investment Management. Chart created using Optuma Technical Analysis Software

1. Point 1 shows a diagonal trend line across the market’s relative peaks in 2022. You can see that this line often behaved as “resistance,” meaning that when price rallied to this trend line, a wave of supply came in and pushed the market lower. We saw the S&P 500 break above this resistance line at the beginning of the year. You can also see that the market then declined to the trend line last month but bounced off it. This is a positive for the market. Has prior resistance now become support?

2. Right now, the S&P 500 is near a prior peak, which can be a point of contention. While the market index has appeared to have established a higher low, can it also put in a higher high? Sometimes, you may experience an outlier day that bounces off, or even breaks through the resistance line.

3. Coinciding with the prior peak, the S&P 500 is very close to being “overbought” meaning its risen too far, too fast according to its 10-period RSI (a common technical indicator). When a market or security becomes overbought, it would be expected to experience some sort of pullback or sideways movement to catch its breath.

In summary, in the short term, the market is almost overbought, and near its recent peak, which could behave as resistance. In addition, volatility is declining with 10-day CVI at its lowest point for the last year and a half. This could be a recipe for another outlier day, as the market has not seen one in a few weeks. Keep in mind that the outlier day can come in either direction, up or down.


Long term treasury bonds appear to have reached a point of resistance and fallen off of it. Looking at the chart below, which shows the 20-year treasury ETF (TLT), treasury bonds have been in a “trading range” since November. A trading range is a sideways fluctuation where supply and demand battle out at two different points. At support, the lower line, demand usually becomes stronger and forces prices higher. At resistance, the upper line, supply wins and forces prices lower. Eventually, price will break one of the lines, either above the upper line or below the lower line. Interestingly, the volatility (as measured by the Canterbury Volatility Index) of the treasury bond ETF is higher, or riskier, than the volatility of the S&P 500.

Source: Canterbury Investment Management. Chart created using Optuma Technical Analysis Software

Bottom Line

In the short term for stocks, the S&P 500 is at a small point of resistance, while being nearly overbought. While it is positive that volatility has declined and outlier days have become less frequent, this could be a spot where you see a small burst in volatility in the form of one or more outliers.

For the longer term, the market has rallied off of prior resistance (the diagonal line drawn from prior peaks) and appears to have put in a higher low. This is a crucial part of the process for returning to the market’s all-time high. Rome was not built in a day, and neither will the recovery from a bear market.

As far as leadership is concerned, developed international stocks remain strong. Part of this has been due to a poor performing US dollar. In addition, many US sectors are seeing volatility decline. The only US sectors that are in one of Canterbury’s four “bear Market States” are Financials, Utilities and Real Estate.

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