Lots of action last week but not much change when it was all said and done. Still looking at competition between the poor but improving sentiment figures and the positive but
deteriorating technical indicators:
Very strange earnings data came out last week. Last twelve month data declined and we are in almost a one-year flat earnings trend. But estimates were increased in a meaningful way for both this year and next. What do the analysts see that I don't? Exposure remains the same this week at 100% because the weighted average is increasing as 2013 estimates are factored into the mix.
Investors in the Rydex Funds continued to hold extremely bullish positions that are at record levels. There was some indication, though, that these folks are finally becoming less bullish. Exposure = -10%, maximum bearish position.
NAAIM investors became a bit less bullish but they are still optimistic.
Exposure = 20%, same as last week.
Small option buyers became less bullish last week. They are almost approaching a neutral level now.
Exposure = 35%, up from 5% last week.
When one of my sentiment indicators is maximum bearish and each of the others is neutral or bearish I assign an overall sentiment exposure of 0%.
Percentage of value represented by net current assets stayed the same last week.
Exposure = 60%, same as last week.
Comparison of bond yields to stock earnings yields stayed the same last week.
Exposure = 50%, same as last week.
Total valuation factor exposure = 55%, same as last week.
I combine these three factors by multiplying them together and then taking the cube root. These three factors, therefore, lead to a 0% exposure, same as last week.
The trend in high yield bonds compared to treasuries is still in an uptrend so I add 10%.
NH-NL is still positive but acting poorly. I add 20% when they are positive.
Total technical adjustments are +30% and exposure = 30%, same as last week.
Two week moving average is 30%, same as last week.
Richard Moore, CFA
With my wife in Hawaii