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4/26/2015

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I've learned quite a bit after publishing this blog for almost three years so I've decided to reconfigure what I'm doing to hopefully be more useful.  I've gone back and restated my results to take into account these changes.  There are several reasons for this change:  First, I've always considered earnings to be the key factor in stock market forecasting.  Just recently I have been able to reconstruct the S & P earnings to exclude commodity companies and now I can actually project out earnings four quarters ahead with the data available at Portfolio 123.  Secondly, I think I have been making the situation too complicated by looking at too many indicators and giving them too much weight in the model.  Finally, I am looking for a way to spend less time on my investments and simplifying should be a big help.
For this week, my new earnings model, after going neutral for a brief time, has come back to a fully positive position.  While valuation remains a serious problem, sentiment has been improving and is now classified as neutral.  My model moves from 0% last week to 50% this week.
 
Earnings:
Earnings estimates of non-commodity companies in the S & P 500 are increasing on a forward 12 month basis.  This sets my model at 100% exposure. 
Sentiment:  
Sentiment factors have been improving as the market has consolidated for most of this year.  Currently sentiment is neutral with no effect on over-all exposure.
Valuation:
Valuation remains extremely high and makes the market vulnerable.  A discount of 50% is applied based on this overvaluation.

Total exposure this week = 100% -0% -50% = 50%
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Churning Continues

4/19/2015

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The market is flatlining in preparation for its next move.  I think any move of consequence will be down rather than up but we shall see.  Earnings continue to deteriorate as do many of the economic indicators that have been reported recently.  I remain in a very defensive mode until the earnings outlook becomes clearer.
 
Earnings:
This year's earnings estimate trend (excluding commodity companies)- Neutral
Earnings estimates 52 weeks out - Negative
Gap between future 52 week estimate and latest 12 month results - Neutral
Total earnings exposure and maximum total exposure under these conditions 25%

Sentiment:
Equity put/call ratio +35%
Small investor put/call ratio +20%
NAAIM Manager cash position -10%
Average sentiment exposure this week +15%

Valuation:
Long term valuation 0%
Stock prices represented by net current assets 0%
Stock earnings yield compared to ten year treasury yield +50%
Average valuation exposure this week +17%

Total exposure from above three factors +19%.

Technical Adjustments:
Comparison of Treasury Bond yields compared to lower quality corporate bond yields -10%
New highs minus new lows on the NASDAQ +20%
Trend indicator for new highs minus new lows 0%
Total technical adjustments +10%

Total stock exposure for the week +29%
Rounded to the nearest 25th percentile +25%.
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You Have To Laugh

4/12/2015

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Sometimes just trying to find the humor in a situation is all that I can do to cope with things that don't make much sense.  Here we have a situation where earnings are forecast to be down for the first and second quarters and current estimates for 2015 are essentially the same as they were for 2014 just 4 or 5 months ago.  Valuation is extremely high and pretty much everyone is bullish.  Last week my technical indicators reversed to the positive side again, although only marginally.  So the best reason  to continue buying stocks is that they are going up.  That is pretty funny to me.
 
Earnings:
This year's earnings estimate trend (excluding commodity companies)- Neutral
Earnings estimates 52 weeks out - Negative
Gap between future 52 week estimate and latest 12 month results - Neutral
Total earnings exposure and maximum total exposure under these conditions 25%

Sentiment:
Equity put/call ratio +50%
Small investor put/call ratio +35%
NAAIM Manager cash position -10%
Average sentiment exposure this week +25%

Valuation:
Long term valuation 0%
Stock prices represented by net current assets 0%
Stock earnings yield compared to ten year treasury yield +30%
Average valuation exposure this week +10%

Total exposure from above three factors +18%.

Technical Adjustments:
Comparison of Treasury Bond yields compared to lower quality corporate bond yields -10%
New highs minus new lows on the NASDAQ +20%
Trend indicator for new highs minus new lows 0%
Total technical adjustments +10%

Total stock exposure for the week +28%
Rounded to the nearest 25th percentile +25%.
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Still In A Fully Hedged Position

4/5/2015

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Earnings remain on the verge of turning outright negative while everything else is looking anywhere from neutral to awful.  It seems like lots of investors are hoping for earnings improvements in the last half of 2015 and they may be right.  However, if that outlook deteriorates, I think there will be a rush to the exits as people recognize that a zero return in a money market fund is better than a negative one in stocks.
 
Earnings:
This year's earnings estimate trend (excluding commodity companies)- Neutral
Earnings estimates 52 weeks out - Negative
Gap between future 52 week estimate and latest 12 month results - Neutral
Total earnings exposure and maximum total exposure under these conditions 25%

Sentiment:
Equity put/call ratio +65%
Small investor put/call ratio +35%
NAAIM Manager cash position -10%
Average sentiment exposure this week +30%

Valuation:
Long term valuation 0%
Stock prices represented by net current assets 0%
Stock earnings yield compared to ten year treasury yield +50%
Average valuation exposure this week +17%

Total exposure from above three factors +23%.

Technical Adjustments:
Comparison of Treasury Bond yields compared to lower quality corporate bond yields -10%
New highs minus new lows on the NASDAQ +20%
Trend indicator for new highs minus new lows -25%
Total technical adjustments -15%

Total stock exposure for the week +8%
Rounded to the nearest 25th percentile 0%.
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    With my wife on Aruba
    December 2019

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