Scientific Method to Determine Current Market Conditions

Scientific Method to Determine Current Market Conditions

Posted on July 28, 2011

This was a tough week for the stock market. The S&P 500 and the Dow Jones Industrial Average are both down around -3%.

The Canterbury Portfolio Thermostat matrix helps determine the current state or condition of the market. We developed a matrix which identifies 12 different Market States. Each Market State is based on combining the long term trend, medium term changes in volatility, and a combination of short term technical market indicators. Of our 12 Market States, 6 are Bullish, 4 are Bearish, and 2 are Neutral.

Currently, we are in Market State 2. Market State 2 means that the long term trend is Bullish (positive), medium term volatility Bullish, and short term technical’s Bearish (negative).

Market State 2 typically is a “buy the dip” market state. Our volatility index is currently at 74. To put the number in prospective, volatility below 90 most often means a market correction of about -4% to -8% followed by a continuation of the long term trend (Currently Bullish).

Bottom line, based on the current Thermostat Matrix, we may have seen a short term bottom yesterday. If not, we are probably limited to about a -5% correction from here. Our outlook will change if our Market State 2 changes to one of the other 11 states. We remain Bullish and will hold a larger than normal percentage in stock.

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.

Canterbury Investment Management: Kim Custer

More About Kim Custer

Kimberly J. Custer is co-founder of Canterbury Investment Management, LLC. As Chief Investment Strategist, Kim oversees and coordinates all aspects of Canterbury's investment strategy. She has a wide breadth of knowledge and experience in global markets, sector and security analysis. Kim is responsible for the coordination of our investment strategy with each client's investment objectives and the timely execution of all portfolio adjustments.