 Not much change again last week but at least there was some intraweek price volatility to keep things interesting. My model is turning a little more positive as some investors got a little spooked last week. Most of them, though, are still very complacent:
Earnings: Earnings results reverted to previous readings as last twelve month numbers declined substantially. The gap between last twelve month results and future twelve month expectations is now almost 27% and it is growing again. My first earnings indicator is back to 0%, down from 100% last week. Twelve month forward earnings are still trending higher and improved last week as optimistic analysts increase their estimates. This indicator is still positive at this point with 100% exposure. 2013 estimates are my third indicator and they too continue positive. They also call for 100% exposure. Total exposure from the earnings factor is back to 67%, down from 100% last week. Sentiment: Rydex leveraged fund investors got still more bullish last week and this indicator continues in an extreme bearish position. Exposure from this indicator continues at -10%, same as last week. Small option buyers swung over to put buying last week, indicating their growing concern. Exposure increases to 65%, up from 50% last week. NAAIM managers continued to be very optimistic and my indicator remains in extreme negative territory. Exposure remains at -10% this week, the maximum bearish level. Total sentiment exposure is 15% this week, up from -10% last week. Valuation: Percentage of stock prices represented by net current assets remained the same last week so exposure continues at 20%, same as last week. Comparison of stock earnings yield to ten year treasury yield stayed the same last week. Exposure remains at 30%, same as last week. Total valuation exposure is 25%, same as last week. To combine these three factors, I multiply them together and then take the cube root. This week, that number is 29%, up from -10% 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. Total technical adjustments this week are +30%, same as last week. After adjustments, total exposure for the week is 59% or, after rounding, 50% compared to 25% last week.
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 Another boring week as the S & P 500 tacked on a couple of more points. I continue to take a very conservative approach, feeling that the risk/reward ratio is unfavorable at this point:
Earnings: Earnings results were surprisingly good last week. Although the gap between last twelve month earnings and future twelve month earnings is large, it is not growing after last week's postings. That means my indicator is now neutral and exposure goes to the minimum exposure of the other two earnings indicators, currently 100%, up from zero percent last week. Twelve month forward earnings are still trending higher and improved last week as optimistic analysts increase their estimates. This indicator is still positive at this point with 100% exposure. 2013 estimates are my third indicator and they too continue positive. They also call for 100% exposure. Total exposure from the earnings factor is 100%, up from 67% last week. Sentiment: Rydex leveraged fund investors got still more bullish last week and this indicator continues in an extreme bearish position. Exposure from this indicator continues at -10%, same as last week. Small option buyers remain confused and are neutral. In general, the put/call indicators are the only ones not looking very bearish. Exposure remains at 50%, same as last week. NAAIM managers continued to be very optimistic and my indicator remains in extreme negative territory. Exposure remains at -10% this week, the maximum bearish level. When two of my sentiment indicators are maximum bearish and the other one is either bearish or neutral, I assign a sentiment factor exposure of -10%, same as last week. Valuation: Percentage of stock prices represented by net current assets remained the same last week so exposure continues at 20%, same as last week. Comparison of stock earnings yield to ten year treasury yield improved last week. Exposure increases to 30%, up from 20% last week. Total valuation exposure is 25%, up from 20% last week. To combine these three factors, I multiply them together and then take the cube root. However, since my sentiment factor exposure is -10%, I assign a -10% overall exposure to the model this week, 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. Total technical adjustments this week are +30%, same as last week. After adjustments, total exposure for the week is 20% or, after rounding, 25% compared to 25% last week.  The market eked out a small gain last week as the discounting process continued. It seems to me that just about every possible positive for the economy in 2013 has been discounted. Most investor groups are extremely positive but it is always possible for them to get even more bullish. I am not afraid of the market running away, though. When the correction comes it should bring us back to levels seen a couple of weeks ago. At least.
Earnings: Earnings results were a bit better last week but the gap between current earnings and future estimates continues to grow and this indicator is negative, calling for zero exposure. Twelve month forward earnings are still trending higher, but just barely. Any estimate reduction will turn this indicator neutral or negative but it is still positive at this point with 100% exposure. 2013 estimates are my third indicator and they too continue just barely positive now and could go neutral next week. At this time, though, they are still trending higher and call for 100% exposure. Total exposure from the earnings factor is 67%, same as last week. Sentiment: Rydex leveraged fund investors got still more bullish last week and now this indicator has reached an extreme position again. Exposure from this indicator is now at -10%, down from 5% last week. Small option buyers remain confused and are neutral. In general, the put/call indicators are the only ones not looking very bearish. Exposure remains at 50%, same as last week. NAAIM managers continued to be very optimistic and my indicator has collapsed into record negative territory. Exposure remains at -10% this week, the maximum bearish level. When two of my sentiment indicators are maximum bearish and the other one is either bearish or neutral, I assign a sentiment factor exposure of -10%, down from 0% last week. Valuation: Percentage of stock prices represented by net current assets remained the same last week so exposure continues 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 still 20%, same as last week. To combine these three factors, I multiply them together and then take the cube root. However, since my sentiment factor exposure is -10%, I assign a -10% overall exposure to the model this week, down from 0% 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. Total technical adjustments this week are +30%, same as last week. After adjustments, total exposure for the week is 20% or, after rounding, 25% compared to 25% last week.  How much farther can the market advance? In the short run anything is possible but I don't think it will be too much longer. Sine the fall of 2011, the market has made three legs up, each weaker and with less foundation than the previous leg. The first went 29%, the second 15% and this one has gone 11% so far. It looks like an ascending triangle - not a pretty technical formation:
Earnings: Earnings results looked very worrisome this week. Last twelve month results declined more than one dollar a share to $88.33 and twelve month forward projections also declined to $110.67. This implies a 25% earnings increase - doesn't seem possible to me. So the gap continues to grow and this indicator is negative, calling for zero exposure. Twelve month forward earnings are still trending just slightly higher and are positive with 100% exposure but another week or two of declining expectations would turn this indicator neutral or negative. 2013 estimates are my third indicator and they too are just barely positive now and could go neutral next week. At this time, though, they are still trending higher and call for 100% exposure. Total exposure from the earnings factor is 67%, same as last week. Sentiment: Rydex leveraged fund investors got quite a bit more bullish last week but the indicagtor has not turned extreme just yet. Exposure from this indicator remains at 5%, same as last week. Small option buyers remain confused and are neutral. In general, the put/call indicators are the only ones not looking very bearish. Exposure remains at 50%, same as last week. NAAIM managers continued to be very optimistic and last week they took the unusual position of being leveraged long. That is not a good thing. Exposure remains at -10% this week, the maximum bearish level. When one of my sentiment indicators is maximum bearish and the other two are either bearish or neutral, I assign a sentiment factor exposure of 0%, same as last week. Valuation: Percentage of stock prices represented by net current assets remained the same last week so exposure continues at 20%, same as last week. Comparison of stock earnings yield to ten year treasury yield declined last week reflecting the increase in interest rates and the increase in stock prices. Exposure remains at 20% this week, same as last week. Total valuation exposure is still 20%, 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%, 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. Total technical adjustments this week are +30%, same as last week. After adjustments, total exposure for the week is 30% or, after rounding, 25% compared to 25% last week. |
Richard Moore, CFAWith my wife in Hawaii Categories |
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