A Narrow Market

The popular market averages continue their push to new highs but the difference this time is that the broader market is lagging behind.  My model has increased its exposure because the technical factors have turned positive and earnings estimates continue in an uptrend.  Sentiment factors are turning negative again but this rally could continue for a couple of weeks as everyone turns wildly bullish again.

Earnings:
Estimates for 2014 have stalled at around $118.50 but they are still in an uptrend.  As long as this continues, my first earnings indicator is positive.
Looking at earnings 52 weeks ahead, estimates are also in  a clear uptrend.
With both indicators positive, earnings exposure remains at 100%, same as last week.
Looking at the gap between last twelve month earnings and future 52 week projections, the gap has reached negative levels and that gap is increasing.
The large and widening gap dictates a reduction in the earnings factor by 25%.
Total earnings factor exposure and maximum total exposure remains at 75%, same as last week.
  
Sentiment:
The equity put/call ratio declined meaningfully last week but my moving average didn't decline as much.
Exposure declines to 35%, down from 50% last week.
Small option buyers have also started buying calls again with gusto but not yet enough to change this indicator.
Exposure remains at 50%, same as last week.
NAAIM managers have remained bullish on balance but not at extreme levels.
Exposure remains at 20%, same as last week.
Average exposure from sentiment factors is 35% this week, down from 40% last week.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the next 10 years 
are still below the yield on the ten year treasury and are actually now below 2%. 
This factor continues to call for 0 equity exposure.
Percentage of stock prices represented by net current assets remained the same last week.
Exposure remains at 0%, same as last week.
Comparison of stock earnings yield to ten year treasury yield remained the same last week.
Exposure remains at 50%, same as last week.
Total valuation exposure is 17%, same as last week.

To get a combined exposure for these three factors, I multiply them together and then take the cube root.  This week that number is 35%, down from 37% last week.

Technicals:
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 turned positive again last week. 
I add 25% to account for this factor.
My trend indicator for new highs - new lows on the Nasdaq is positive as well so there is no adjustment for this factor.
Total technical adjustments this week are +25%, up from 0% last week.

After adjustments, total exposure for the week is 65% or, after rounding, 75%.
This level of exposure does not exceed the current earnings cap and is up from 50% last week.

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