Not much change again last week but at least there was some intraweek price volatility to keep things interesting. My model is turning a little more positive as some investors got a little spooked last week. Most of them, though, are still very complacent:
Earnings results reverted to previous readings as last twelve month numbers declined substantially. The gap between last twelve month results and future twelve month expectations is now almost 27% and it is growing again. My first earnings indicator is back to 0%, down from 100% last week.
Twelve month forward earnings are still trending higher and improved last week as optimistic analysts increase their estimates.
This indicator is still positive at this point with 100% exposure.
2013 estimates are my third indicator and they too continue positive.
They also call for 100% exposure.
Total exposure from the earnings factor is back to 67%, down from 100% last week.
Rydex leveraged fund investors got still more bullish last week and this indicator continues in an extreme bearish position.
Exposure from this indicator continues at -10%, same as last week.
Small option buyers swung over to put buying last week, indicating their growing concern.
Exposure increases to 65%, up from 50% last week.
NAAIM managers continued to be very optimistic and my indicator remains in extreme negative territory.
Exposure remains at -10% this week, the maximum bearish level.
Total sentiment exposure is 15% this week, up from -10% last week.
Percentage of stock prices represented by net current assets remained the same last week so
exposure continues at 20%, same as last week.
Comparison of stock earnings yield to ten year treasury yield stayed the same last week.
Exposure remains at 30%, same as last week.
Total valuation exposure is 25%, same as last week.
To combine these three factors, I multiply them together and then take the cube root. This week, that number is 29%, up from -10% last week.
My comparison of yields on treasury bonds compared to lower quality corporates remained positive last week.
I add 10% to account for this factor.
New highs - new lows on the Nasdaq are still positive.
I add 20% to account for this factor.
Total technical adjustments this week are +30%, same as last week.
After adjustments, total exposure for the week is 59% or, after rounding, 50% compared to 25% last week.
Richard Moore, CFA
With my wife in Hawaii