9/2/2012 - I try to put myself in tune with the mindset of those that are buying stocks but I can't seem to feel much optimism. Maybe the Fed can pull another rabbit out of the hat without igniting inflation. We'll see:
Earnings estimates for 2012 and 2013 continue to slowly decline and my weighted estimate has now turned just slightly positive because the estimate declines are less than the weighting factor as we approach 2013. Can earnings really increase 15.8% over the balance of this year and then increase 11.8% next year? I doubt it but I have increased the earning factor exposure from 50% last week to 100% this week.
Investors in the Rydex Funds continued to hold extremely bullish positions.
Exposure = -10%, maximum bearish position.
NAAIM investors stayed very confidant and increased their already high level of stock holdings. Exposure = 5%, same as last week.
Small option buyers took a more bullish position - enough to move them to an almost extreme
Exposure = 5%, down from 20% last week.
Total sentiment exposure is 0% this week and is now equal to where it was last April with the S & P 500 at approximately the same level. This is the same exposure as last week.
Percentage of value represented by net current assets stayed the same last week.
Exposure = 20%, same as last week.
Comparison of bond yields to stock earnings yields improved last week as interest rates declined. Exposure = 50%, up from 30% last week.
Total valuation factor exposure = 35%, up from 25% last week.
To arrive at my exposure number from these factors, I multiply them together and then take the cube root. This week, that number is 0%, the same as last week.
The trend in high yield bonds compared to treasuries is still in a very slight uptrend so I add 10%.
NH-NL remains positive so I add 10% for that indicator.
Total technical adjustments are +20% and exposure = 20%,
same as last week.
Two week moving average is 20%, down from 32% last
Richard Moore, CFA
With my wife in Hawaii