There were some minor improvements in my model last week but not enough to call for any increase in exposure to the stock market at this time.  This correction should have farther to go.  The real question is whether the correction will turn into a more serious bear market.  The jury is still out but there are some disturbing developments on the earnings front.  I remain fully hedged.

Earnings:
Estimates for 2014 remain in  a flattish trend.  More earnings reports and accompaning commentary are necessary before trends can be observed.  For now, my first earnings indicator is still positive.
Looking at earnings 52 weeks ahead, estimates have now gone into a marginally negative trend.  It is not a clear downtrend at this point so I am calling this indicator neutral for the time being. 
With one indicator positive and the other neutral, my maximum earnings exposure is 75%, down from 100% last week.
Looking at the gap between last twelve month earnings and future 52 week projections,the gap remains large but it is slowly shrinking.
There is no adjustment for this gap now since it is decreasing.
Total earnings factor exposure and maximum total exposure is now 75%, down from 100% last week.

Sentiment: 
Odd lot investors became a tiny bit more concerned last week and increased their shorting levels somewhat. 
Exposure increases to 5%, up from -10% last week.
Small option buyers remain very bullish but have also backed off just a bit from their previous wildly bullish stance.
Exposure increases to 5%,  up from -10% last week.
NAAIM managers continue to be virtually fully invested in stocks. 
They remain in an extreme bullish position.
Exposure remains at -10%, same as last week.
My sentiment indicators improved last week but they are a long way from being bullish.
Sentiment exposure increases to 0%, up from -20% last week.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the next 5-10 years are below the level of the ten year treasury bond yield.  
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 20%, same as last week.
Comparison of stock earnings yield to ten year treasury yield increased sharply last week as the market declined and interest rates also moved lower.
Exposure increases to 70%, up from 30% last week.
Total valuation exposure is 30%, 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%, up from -20% 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 are still positive.
I add 20% to account for this factor.
My trend indicator for new highs - new lows on the Nasdaq went into a negative position last week.
I subtract 25% to account for this factor.
Total technical adjustments this week are +5%, down from +30% last week.

After adjustments, total exposure for the week is +5% or, after rounding, 0%.
This level of exposure does not exceed the current earnings cap and is the same as last week.

   The market has basically flattened out for the last few weeks but volatility has increased.  I continue to believe that the next move of consequence will be down - not up.  My sentiment indicators have been maximum negative for several weeks in a row and the earnings news is neutral at best.  I'm still fully hedged.

Earnings:
Estimates for 2014 remain in  a flattish trend.  More earnings reports and accompaning commentary are necessary before trends can be observed.  For now, my first earnings indicator is still positive.
Looking at earnings 52 weeks ahead, estimates are flattening out and are actually very close to going negative.  At this point, though, the trend is still marginally positive. 
With both earnings indicators positive, my maximum earnings exposure is 100%.
Looking at the gap between last twelve month earnings and future 52 week projections, 
the gap remains large but it is slowly shrinking.
There is no adjustment for this gap now since it is decreasing.
Total earnings factor exposure and maximum total exposure is therefore 100%, same as last week.

Sentiment: 
Odd lot investors remain extremely bullish and continue to short at very low levels.   
Exposure remains at -10%, same as last week.
Small option buyers remain very bullish and are strongly purchasing calls. 
Exposure remains at -10%,  same as last week.
NAAIM managers continue to be virtually fully invested in stocks. 
They remain in an extreme bullish position.
Exposure remains at -10%, same as last week.
My sentiment indicators remain at maximum negative - now for a record five weeks straight.
In the current situation, I assign an exposure of -20% to my overall model.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the next 5-10 years are below the level of the ten year treasury bond yield.  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 20%, same as last week.
Comparison of stock earnings yield to ten year treasury yield increased two weeks ago and remains the same last week.
Exposure remains at 30%, same as last week.
Total valuation exposure is 17%, same as last week.

With my sentiment indicators at maximum negative, I assign an overall reading for the above three factors of -20%.  This is the same as 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 are still positive.
I add 20% to account for this factor.
My trend indicator for new highs - new lows on the Nasdaq remained just barely positive last week.
No adjustment is necessary for this factor.
Total technical adjustments this week are +30%, same as 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.

I've got internet problems this week that prevent me from posting a full review of my model.  However, there are no changes in the outlook.  Everyone is still bullish, valuation is still high, and technical factors are still positive.  My model continues to recommend zero exposure to the stock market and I remain fully hedged.

  It has only been a couple of days since my last post so things haven't changed much.  Bullishness is pretty much universal and valuation remains very unattractive.  I continue to believe that we are approaching a period of poor market performance.  The risk/reward ratio looks awful.

Earnings:
Estimates for both 2013 and 2014 remain in flat or downward trends.  I am looking at 2014 estimates now and it is very possible that the trends coming from 2013 will turn negative soon.  It hasn't happened yet, though, so my first earnings indicator remains positive.
Looking at earnings 52 weeks ahead, estimates are still in an upward trend as optimistic analysts
stay very positive.
With both earnings indicators positive, my maximum earnings exposure is 100%.
Looking at the gap between last twelve month earnings and future 52 week projections,
the gap remains large but it is slowly shrinking.
There is no adjustment for this gap now since it is decreasing.
Total earnings factor exposure and maximum total exposure is therefore 100%, same as last week.

Sentiment: 
Odd lot investors remain extremely bullish and have reduced shorting to very low levels.  
Exposure remains at -10%, same as last week.
Small option buyers remain very bullish and are strongly purchasing calls.
Exposure remains at -10%,  same as last week.
NAAIM managers continue to be virtually fully invested in stocks. 
They remain in an extreme bullish position. 
Exposure remains at -10%, same as last week.
My sentiment indicators remain at maximum negative - now for a record three weeks straight.
In the current situation, I assign an exposure of -20% to my overall model.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the
next 5-10 years are below the level of the ten year treasury bond yield.  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 20%, same as last week.
Comparison of stock earnings yield to ten year treasury yield remained the same last week.
Exposure remains at 20%, same as last week.
Total valuation exposure is 13%, same as last week.

With my sentiment indicators at maximum negative, I assign an overall reading for the above three factors of -20%.  This is the same as 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 are still positive.
I add 20% to account for this factor.
My trend indicator for new highs - new lows on the Nasdaq remained just barely positive last week.
No adjustment is necessary for this factor.
Total technical adjustments this week are +30%, same as 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.

   It always mystifies me when, after a huge market advance, small investors and speculators can't buy aggressively enough.  Doesn't it make sense that stocks are less attractive than they were one, two or five years ago?  Nevertheless, that's what always happens and it is impossible to predict the end point for a blowoff like this.  I feel confidant that recent gains and any future gains will be subsequently fully reversed and I am maintaining a fully hedged position.

Earnings:
Estimates for both 2013 and 2014 remain in flat or downward trends but the fact that I am shifting weight from this year to next is allowing my first earnings indicator to remain positive.  I should mention, though, that estimates were rather sharply reduced last week.  It is too early to judge whether the trend is changing yet but I will no longer be shifting weight from 2013 to 2014 because 2013 is now over.
Looking at earnings 52 weeks ahead, estimates are still in an upward trend as optimistic analysts
stay very positive.
With both earnings indicators positive, my maximum earnings exposure is 100%.
Looking at the gap between last twelve month earnings and future 52 week projections,
the gap remains large but it is slowly shrinking.
There is no adjustment for this gap now since it is decreasing.
Total earnings factor exposure and maximum total exposure is therefore 100%, same as
last week.
 
Sentiment: 
Odd lot investors remain extremely bullish and have reduced shorting to very low levels.  
Exposure remains at -10%, same as last week.
Small option buyers remain very bullish and are strongly purchasing calls.
Exposure remains at -10%,  same as last week.
NAAIM managers continue to be virtually fully invested in stocks. 
They remain in an extreme bullish position.
Exposure remains at -10%, same as last week.
It is very unusual for my sentiment indicators to remain universally maximum negative for two weeks in a row.  The last time it happened was early in 2011.  The market soon flattened out and turned negative.  Stock price levels did not recover to those early 2011 levels until one year later.  In the current situation, I assign an exposure of -20% to my overall model.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the
next 5-10 years are below the level of the ten year treasury bond yield.  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 20%, same as last week.
Comparison of stock earnings yield to ten year treasury yield declined last week, reflecting the increase in ten year yields to over 3%.
Exposure declines to 20%, down from 30% last week.
Total valuation exposure is 13%, down from 17% last week.

With my sentiment indicators at maximum negative, I assign an overall reading for the above three factors of -20%.  This is the same as 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 are still positive.
I add 20% to account for this factor.
My trend indicator for new highs - new lows on the Nasdaq turned positive last week.
No adjustment is necessary for this factor.
Total technical adjustments this week are +30%, up 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 up from -25% last week.