A Volatile Period

Reflecting the news background and  year-end crosscurrents, my model has gotten even more volatile as the indicators  move around.  The basic message, though, remains that this is a time
to be  cautious and have some cash around.  I can't see much of a reason for a market  that takes off on an extended rally.  Merry Christmas!

Earnings:
Once again last week, last twelve month earnings declined while the forward 52 week estimate increased slightly.  It looks similar to the end of 2007 in this regard.  This indicator is negative
and  calls for zero exposure.  Twelve month forward earnings are still  nudging higher and are positive with 100% exposure.  My hybrid method that looks at this  year's estimates and weights in 2013 in the second half is also positive and  calls for 100% exposure.
Total exposure from the earnings factor is 67%,  same as last week.
  
Sentiment:
Rydex leveraged fund investors continued quite  bullish but not to previous extremes.  Exposure from this indicator remains at  5%, same as last week.
Small option buyers are continuing in a neutral  posture.
Exposure stays at 50%, same as last week.
NAAIM managers continued to get even more optimistic.  They are in extreme wildly bullish territory now.
Exposure is -10%  this week, down from 5% last week.
When one of my sentiment indicators is maximum  bearish and the other two are neutral or worse, I assign a sentiment exposure of  0%.

Valuation:
Percentage of stock prices represented by net current assets stayed the same last week so exposure remains at 40%.
Comparison of stock earnings yield to ten year  treasury yield stayed the same last week.  Exposure is 50% this week, same as last week.
Total valuation exposure is 45%, same as last week.
  
To combine these three factors, I multiply them  together and then take the cube root.  Therefore, these three factors call for a  market exposure of 0%, down from 39% last week.

Technicals:
My comparison of yields on treasury bonds compared to lower quality corporates stayed negative last week.  I subtract 10% to account for this. 
New highs - new lows on the Nasdaq still looks  like it could result in a whipsaw but, so far, it is still positive.  I
add 20%  to account for this factor.
Total technical adjustments this week are
+10%,  same as last week.

After adjustments, total exposure for the
week  is 10% or, after rounding, 0% compared to 50% last week.
 

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