Another False Alarm?

There have been many false starts to a correction and this may be another one.  However, as time passes, each decline has been ignored more than the previous one.  The key to creating some base for a renewed rally will be an improvement in sentiment and in valuation.  While they have both improved marginally last week, they are a long way from being bullish.  My model is still keeping me in a fully hedged position although the underperformance of the smaller stocks has hurt my performance compared to the S & P 500.  The potential for a further sharp drop is still present.

Earnings:
I am beginning to add in 2015 earnings expectations now that we are in the final half of the year.  This weighted estimate for 2014-2015 is 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 improved last week and a very bullish reading occurred on Friday.
Exposure increases to 35%, up from 5% last week.
Small option buyers have also increased their put buying.
Exposure increases to 20%, up from 5% last week.
NAAIM managers remained essentially fully invested last week.
Exposure remains at -10%, same as last week.
When one of my sentiment indicators is maximum bearish and the other two are neutral or negative, I assign a sentiment factor reading of 0%. 
This is the same as 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.  
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 increased last week.
Exposure increases to 70%, up from 50% last week.
Total valuation exposure is 23%, up from 17% 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 0%, same as last week.

Technicals:
My comparison of yields on treasury bonds compared to lower quality corporates remained in a neutral position last week.
There is no adjustment to account for this factor. 
New highs - new lows on the Nasdaq turned marginally negative last week. 
I subtract 10% to account for this factor.
My trend indicator for new highs - new lows on the Nasdaq is not operative since the previous indicator is negative.
Total technical adjustments this week are -10%, down from +5% last week.

After adjustments, total exposure for the week is -10% or, after rounding, 0%.
This level of exposure does not exceed the current earnings cap and is the same as last week.