Earnings results going forward still are the key, I believe, to the health of the stock market for the balance of this year.  Based on what I hear on CNBC, second quarter results will not be very good.  If we continue to muddle through with minimal earnings gains for the rest of this year, I don't see how the market can advance.

Earnings:
Earnings results continue to be flat to down as they are reported.  Earnings have been essentially flat now for about 18 months.  The gap between last twelve month results and future twelve month
expectations is still more than 28% and it continues to grow.
This indicator continues to suggest 0% exposure this week.
Twelve month forward earnings are still trending higher but may have reached a temporary peak. 
This indicator is still positive at this point with 100% exposure.
2013 estimates are my third indicator and they are still trending lower but just marginally so.   
This indicator remains in a neutral-negative status and calls for 25% exposure.
Total exposure from the earnings factor is 42%,  same as last week.
I have been wrestling with my overall exposure and how it relates to earnings and have decided that I need to pay more attention to this factor.  From now on, I will be capping my overall exposure based on the earnings factor.  This week, with one of the indicators very negative, one neutral and one positive but deteriorating, my earnings factor  model results  total exposure at 25%.
 
Sentiment: 
Odd lot investors have moved away from an extreme bearish position as they have
increased their levels of shorting.  This indicator remains neutral. 
Exposure remains at 50% this week, same as last week.
Small option buyers have become more cautious and have reduced their call buying. 
They remain at a neutral sentiment level.
Exposure increases to 65%,  up from 50% last week.
NAAIM managers have also gotten more concerned.  They have increased their cash levels but are still essentially neutral.
Exposure increases to 65% this week, up from 50% last week.
Average sentiment exposure this week is 60%, up from 50% 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 was unchanged last week.
Exposure remains at 20%, same as last week.
Total valuation exposure is 20%, same as last week.

To combine these three factors, I multiply them together and then take the cube root. 
This week, that number is 37%, up from 35% 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, but before the cap mentioned above in the earnings section, total exposure for the week would be 67% or, after rounding, 75% compared to 75% last week.

Because of the uncertain earnings outlook, I am using a cap this week of 25% exposure.  I have backtested my earnings cap approach with positive results and note that it has not been needed in the past for more than a few weeks.  The earnings factor should become clearer as second quarter results are announced. 

 There is a serious question as to whether or not earnings expectations can hold up for the balance of this year and into 2014.  The answer to that question will determine if this is just a correction or the start of something much uglier.  For now, though, my model is not detecting a change in major trend.

Earnings:
Earnings results continue to be flat to down as they are reported.  Earnings have been essentially flat now for about 18 months.  The gap between last twelve month results and future twelve month expectations is still more than 28% and it continues to grow.
This indicator continues to suggest 0% exposure this week.
Twelve month forward earnings are still trending higher as analysts obviously think things will
improve during the balance of this year and 2014. 
This indicator is still positive at this point with 100% exposure.
2013 estimates are my third indicator and they are still trending lower but just marginally so.   
This indicator has improved to neutral-negative status and calls for 25% exposure.
Total exposure from the earnings factor is 42%, up from 33% last week.

Sentiment: 
Odd lot investors have moved away from an extreme bearish position as they have
increased their levels of shorting.  This indicator remains neutral.  
Exposure remains at 50% this week, same as last week.
Small option buyers don't show any strong bias one way or the other.  They remain at a
neutral sentiment level.
Exposure stays at 50%,  same as last week.
NAAIM managers also remained in a neutral posture.
 Exposure remains at 50% this week, same as last week.
Average sentiment exposure this week is 50%, 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 large increase in interest rates.
Exposure declines to 20%, down from 30% last week.
Total valuation exposure is 20%, down from 25% last week.

To combine these three factors, I multiply them together and then take the cube root. 
This week, that number is 35%, 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 65% or, after rounding, 75% compared to 75% last 
week.

 A little more weakness and continuing volatility have combined to improve my sentiment indicators while the technical picture still looks OK.  An increase in exposure is the result:

Earnings:
Earnings results continue to be flat to down as they are reported.  Earnings have been essentially flat now for about 18 months.  The gap between last twelve month results and future twelve month expectations is still more than 28% and it  continues to grow.
This indicator continues to suggest 0% exposure this week.
Twelve month forward earnings are still trending higher as analysts obviously think things will
improve during the first quarter of 2014.  
This indicator is still positive at this point with 100% exposure.
2013 estimates are my third indicator and they are trending lower.   
This indicator is negative and calls for 0% exposure.
Total exposure from  the earnings factor is 33%, same as last week.

Sentiment: 
Odd lot investors have moved away from an extreme bearish position as they have increased their levels of shorting.  This indicator is now neutral. 
 Exposure increases to 50% this week, up from 20% last week.
Small option buyers don't show any strong bias one way or the other.  They remain at a neutral
sentiment level.
Exposure stays at 50%,  same as last week.ba
NAAIM managers increased their cash position again last week.
Exposure increases to 50% this week, up from 35% last week.
Average sentiment exposure this week is 50%, up from 35% 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. 
This week, that number is 35%, 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.
Total technical adjustments this week are +30%, same as last week.

After adjustments, total exposure for the week is 65% or, after rounding, 75% compared to 50% last 
week.


 

 Recent weakness and volatility has managed to improve my sentiment indicators, which is good news.  The bad news, though, is that earnings expectations for 2013 are in a downtrend.  It will be hard for exposure to increase beyond 50% without improving confidence that earnings will really increase going forward:
 
Earnings:
Earnings results continue to be flat to down as they are reported.  The gap between last twelve
month results and future twelve month expectations is still more than 28% and it  continues to grow.
This indicator continues to suggest 0% exposure this week.
Twelve month forward earnings are still trending higher as analysts obviously think things will
improve during the first quarter of 2014.  
This indicator is still positive at this point with 100% exposure.
2013 estimates are my third indicator and they are now trending lower.   
This indicator is now negative and calls for 0% exposure, down from 33% last week.
Total exposure from  the earnings factor is 33%, down from 42% last week.

Sentiment: 
Odd lot investors have moved away from an extreme bearish position as they have increased their levels of shorting.  This indicator is still modestly bearish but exposure increases to 20% this week, up from 5% last week.
Small option buyers don't show any strong bias one way or the other.  They remain at a neutral
sentiment level.
Exposure stays at 50%,  same as last week.
NAAIM managers backed off of their bullish stance and increased cash substantially last week.
Exposure increases to 35% this week, up from 5% last week.
Average sentiment exposure this week is 35%, up from 20% 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 20%, same as last week.

To combine these three factors, I multiply them together and then take the cube  root.  This 
week, that number is 28%, up from 24% 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 58% or, after rounding, 50% compared to 50% last  
week.

 

The weakness evident during the last two weeks has managed to pull my sentiment indicators out of extreme bearish territory.  They are still negative, though.  Earnings for 2013 are now in a confirmed downtrend but not so for the estimates 12 months out.  Technical factors are still positive.  The model allocation has increased from 25% to 50% for this week