This seems like really dangerous territory now. The news background continues to be miserable but I try not to get emotional about it - I continue to rely on my indicators:
Investors in the Rydex Funds continued to hold extremely bullish positions. They are slowly backing off from their optimistic position but they still have a ways to go. Exposure = -10%, maximum bearish position.
NAAIM investors continued in a neutral position. Exposure = 50%, same as last week.
Small option buyers are still somewhat bearish but not as much as last week. Exposure = 65%, down from 80% last week.
Total sentiment factor exposure = 35%, down from 40% last week.
Here is where the current situation gets really dicey. Earnings are just a fraction away from going into a negative trend. They are still flat but just a 25 cent reduction next week on a $103.19 base will turn earnings negative. My model would then call for short positions to be initiated and it is hard to see any factors that will improve earnings prospects in the short term. For this week, though, my model remains the same. Exposure = 25%, the same as last week and on watch for turning negative.
Percentage of value represented by net current assets stayed the same last week. Exposure = 60%, same as last week.
Comparison of bond yields to stock earnings yields declined last week. Exposure goes to 50%, down from 70% last week.
Total valuation factor exposure = 55%, down from 65% last week.
These three factors combine (multiply and then take the cube root) for total exposure of 36%, down from 40% last week.
I subtract 10% because the ratio of high yield bonds to treasuries is in a downward trend.
This week I add 10% because NH-NL has gone positive.
Total technical adjustments are 0% and exposure = 36%, up from 20% last week.
Two week moving average is 28%, same as last week.
Richard Moore, CFA
With my wife in Hawaii