In the short run, things are looking up a bit.  Reported 4th quarter earnings were actually pretty good and estimates for 2014 have held up reasonably well.  First quarter weakness, to the extent there is any, will be blamed on the weather.  So, in spite of poor sentiment and horrible valuation, my model has ratcheted up its exposure to 75% this week.

Earnings:
Estimates for 2014 remain in  a flattish trend.  Most companies have reported earnings for 2013 and most have guided modestly higher for this year.  This is not really a surprise and leaves my first earnings indicator just modestly positive.
Looking at earnings 52 weeks ahead, estimates have moved higher and now the trend is just barely positive.  The indicator is now positive again.
With both indicators positive, earnings exposure increases to 100%, up from 75% last week.
Looking at the gap between last twelve month earnings and future 52 week projections,the gap has been shrinking and continued to shrink last week.
There is no adjustment for this gap now since it is smaller and decreasing.
Total earnings factor exposure and maximum total exposure increases to 100%, up from 75% last week.

Sentiment:  
Odd lot investors continued to short at a basically neutral level last week. 
Exposure remains at 50%, same as last week.
Small option buyers continued to be moderately bullish last week and my 4 week moving average indicator stayed the same.
Exposure remains at 35%,  same as last week.
NAAIM managers got more bullish again last week. 
Exposure decreases to 20%, down from 35% last week.
My sentiment indicators deteriorated slightly last week as the market consolidated.
Sentiment exposure declines to 35%, down from 40% last week.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the next 5-10 years
are the same as 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 0%, same as last week.
Comparison of stock earnings yield to ten year treasury yield also remained the same last week.
Exposure stays at 50%, same as last week.
Total valuation exposure is 17%, same as 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 39%, up from 37% 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.
There is, therefore, no adjustment for this factor.
Total technical adjustments this week are +30%, up from +5% last week.

After adjustments, total exposure for the week is 69% or, after rounding, 75%.
This level of exposure does not exceed the current earnings cap and is up from 50% last week.

 It's hard to believe that the little correction we recently experienced was enough to neutralize the wildly bullish sentiment that preceded it.  So I won't believe it.  Nevertheless, my model remains in a position that calls for some exposure to the stock market and I will be participating.  The key to future prosperity is corporate earnings and, so far, estimates have not turned down in a meaningful way.  We will see if they continue to hold up.

Earnings:
Estimates for 2014 remain in  a flattish trend.  Most companies have reported earnings for 2013 and most have guided modestly higher for this year.  This is not really a surprise and leaves my
first earnings indicator just modestly positive.
Looking at earnings 52 weeks ahead, estimates remain in a marginally negative trend.  It is still not a clear downtrend at this point so I am still calling this indicator neutral for the time being.
With one indicator positive and the other neutral, my maximum earnings exposure is 75%, same as last week.
Looking at the gap between last twelve month earnings and future 52 week projections,the gap has been shrinking and continued to shrink last week.
There is no adjustment for this gap now since it is smaller and decreasing.
Total earnings factor exposure and maximum total exposure remains at 75%, same as last week.
  
Sentiment: 
Odd lot investors continued to short at a basically neutral level last week.
Exposure remains at 50%, same as last week.
Small option buyers snapped back to a more bullish position last week but my 4 week moving average indicator continued to move higher. 
Exposure increases to 35%,  up from 20% last week.
NAAIM managers also reversed themselves last week and bought some stocks. 
Exposure decreases to 35%, down from 50% last week.
My sentiment indicators, on balance, deteriorated somewhat last week as the market snapped back.  However, the overall change was not substantial.
Sentiment exposure remains at 40%, same as last week.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the next 5-10 years are the same as 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 declined last week.
Exposure decreases to 0%, down from 20% last week.
Comparison of stock earnings yield to ten year treasury yield also decreased last week.
Exposure declines to 50%, down from 70% last week.
Total valuation exposure is 17%, down from 30% 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 37%, down from 45% 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 in a negative position
last week but just barely so.
I subtract 25% to account for this factor.
Total technical adjustments this week are +5%, same as last week.

After adjustments, total exposure for the week is 42% or, after rounding, 50%.
This level of  exposure does not exceed the current earnings cap and is the same as last week.

  After a Blue Monday the market snapped back later in the week.  The damage inflicted on the bulls was sufficient to turn my sentiment indicators almost neutral.  It is really too early to tell if the correction has farther to run but I am willing to take some positions at this point.  I will continue to watch the rally for clues.  One negative last week was the poor action of the average stock compared to the major averages.  .

Earnings:
Estimates for 2014 remain in  a flattish trend.  Most companies have reported earnings for 2013 and most have guided modestly higher for this year.  This is not really a surprise and leaves my first earnings indicator just modestly positive.
Looking at earnings 52 weeks ahead, estimates remain in a marginally negative trend.  It is still not a clear downtrend at this point so I am still calling this indicator neutral for the time being.
With one indicator positive and the other neutral, my maximum earnings exposure is
75%, same as last week.
Looking at the gap between last twelve month earnings and future 52 week projections,the gap has been shrinking and continued to shrink last week.
There is no adjustment for this gap now since it is smaller and decreasing.
Total earnings factor exposure and maximum total exposure remains at 75%, same as last week.

Sentiment: 
Odd lot investors became still more concerned last week and increased their shorting
levels some more.
Exposure increases to 50%, up from 20% last week.
Small option buyers are still bullish but have started buying more puts. 
Exposure increases to 20%,  up from 5% last week.
NAAIM managers continued to panic last week and increased their cash position further. They are now in a neutral position.
Exposure increases to 50%, up from 5% last week.
My sentiment indicators continued to improve last week and are now almost neutral.
Sentiment exposure increases to 40%, up from 10% last week.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the
next 5-10 years are the same as 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 70%, same as last week.
Total valuation exposure is 30%, same as 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 45%, up from 28% 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 in a negative position 
last week.
I subtract 25% to account for this factor.
Total technical adjustments this week are +5%, same as last week.

After adjustments, total exposure for the week is 50% or, after rounding, 50%.
This level of exposure does not exceed the current earnings cap and is up from 25% last
week.

  Volatility has certainly picked up and some of the bulls are beginning to have second thoughts.  My sentiment indicators have improved modestly as a result.  I'm willing to take small net long positions at this point but it is way too early to get very optimistic.  The character of any rally from here will be important to watch.

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 still calling this indicator neutral for the time being.
With one indicator positive and the other neutral, my maximum earnings exposure is 75%, same as last week.
Looking at the gap between last twelve month earnings and future 52 week projections,the gap has been shrinking and actually went significantly lower last week.
There is no adjustment for this gap now since it is smaller and decreasing.
Total earnings factor exposure and maximum total exposure remains at 75%, same as last week.

Sentiment: 
Odd lot investors became still more concerned last week and increased their shorting levels some more.
Exposure increases to 20%, up from 5% last week.
Small option buyers remain very bullish but have also backed off just a bit from their
previous wildly bullish stance.
Exposure remains at 5%,  same as last week.
NAAIM managers got shook up last week and increased their cash position. They are still bullish but not extremely so.
Exposure increases to 5%, up from -10% last week.
My sentiment indicators continued to improve last week but they are still a long way from being bullish.
Sentiment exposure increases to 10%, up from 0% last week.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the next 5-10 years are the same as 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 70%, same as last week.
Total valuation exposure is 30%, same as 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 28%, up 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.
My trend indicator for new highs - new lows on the Nasdaq remained in a negative position
last week.
I subtract 25% to account for this factor.
Total technical adjustments this week are +5%, same as last week.

After adjustments, total exposure for the week is 33% or, after rounding, 25%.
This level of exposure does not exceed the current earnings cap and is up from 0% last week.