![]() 7/29/2012 - I really hope that Europe can work through its problems but I really doubt that the ECB can solve them by printing money. In any event, my indicators still are signaling extreme caution: Earnings: The trend in estimated earnings is still slightly down and that trend is accelerating. It could improve with a couple of weeks where estimates get raised but that doesn't seem likely. Exposure = 0%, same as last week and shorting the market is a possibility. Sentiment Factors: Investors in the Rydex Funds continued to hold extremely bullish positions. Week after week they continue to hold large positions in the NASDAQ leveraged fund. Exposure = -10%, maximum bearish position. NAAIM investors got still more bullish last week. Exposure = 5%, down from 20% last week. Small option buyers maintain a slight bullish posture. Exposure = 35%, same as last week. Total sentiment factor exposure = 10%, down from 15% last week. Valuation: 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 remained the same last week. Exposure = 50%, same as last week. Total valuation factor exposure = 55%, same as last week. When earnings are trending down, I average the sentiment exposure and the valuation exposure and then subtract 100%. So (10% + 55%)/2 -100% = -67.5% (or 67.5% short). This is down from -65% exposure last week. Technicals: The trend in high yield bonds compared to treasuries is still in a very slight uptrend so I add 10%. This week I subtract 10% because NH-NL has gone negative. Total technical adjustments are 0% and exposure = (67.5%), down from (45%) last week. Two week moving average is -56%, down from -53% last week. My model enters the short side of the market this week, buying a 56% position in SH.
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![]() Not much changed last week. The major averages eked out small gains and the average stock was down. Most of my indicators weakened further: Earnings: The trend in estimated earnings is still slightly down and that trend is accelerating. It could improve with a couple of weeks where estimates get raised but that doesn't seem likely. Exposure = 0%, same as last week and shorting the market is a possibility. Sentiment Factors: Investors in the Rydex Funds continued to hold extremely bullish positions. They are growing still bolder and seem willing to buy into a very bullish outlook. Exposure = -10%, maximum bearish position. NAAIM investors got a little bit more bullish last week. Exposure = 20%, down from 35% last week. Small option buyers got a little bit more bullish. Exposure = 35%, down from 50% last week. Total sentiment factor exposure = 15%, down from 25% last week. Valuation: 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 remained the same last week. Exposure = 50%, same as last week. Total valuation factor exposure = 55%, same as last week. When earnings are trending down, I average the sentiment exposure and the valuation exposure and then subtract 100%. So (15% + 55%)/2 -100% = -65% (or 65% short). This is down from -60% exposure last week. Technicals: Last week showed a change in the trend of high yield bonds to treasuries. It is now in an upward trend and, therefore, I add 10%. This week I add 10% because NH-NL remains positive. Total technical adjustments are 20% and exposure = (45%), up from (60%) last week. Two week moving average is -52.5%, up from -59% last week. However, my model does not short when NH-NL is positive or neutral so exposure this week is 0%. I remain out of the market (on the long side) until the earnings outlook improves. ![]() A big Friday the 13th rally wiped out the losses from the first four days of the week, except for the average stock, as measured by the Value Line Geometric Average. It was down and contributed to further divergence problems. My indicators got a little more bearish: Earnings: My data provider changed its earnings estimate source last week and that caused some minor changes in the current earnings trend. There is still a downtrend and that downtrend is accelerating. However, this provider's estimates are just slightly better than previous. Nevertheless, I am not changing my appraisal of the earnings factor. Exposure = 0%, same as last week and shorting the market is a possibility. Sentiment Factors: Investors in the Rydex Funds continued to hold extremely bullish positions. They are growing still bolder and seem willing to buy into a very bullish outlook. I really don't like it. Exposure = -10%, maximum bearish position. NAAIM investors got a little bit more bullish last week. Exposure = 35%, down from 50% last week. Small option buyers stayed fairly bullish. Exposure = 50%, same as last week. Total sentiment factor exposure = 25%, down from 30% last week. Valuation: 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 remained the same last week. Exposure = 50%, same as last week. Total valuation factor exposure = 55%, same as last week. When earnings are trending down, I average the sentiment exposure and the valuation exposure and then subtract 100%. So (25% + 55%)/2 -100% = -60% (or 60% short). This is down from -57.5% exposure last week. Technicals: 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 remains positive. Total technical adjustments are 0% and exposure = (60%), down from (57.5%) last week. Two week moving average is -59%, down from -57.5% last week. However, my model does not short when NH-NL is positive or neutral so exposure this week is 0%. I remain out of the market (on the long side) until the earnings outlook improves. ![]() 7/8/2012 - The market had its ups and downs last week but, on balance, I believe there was further deterioration in the outlook. This coming week could be really interesting: Earnings: Earnings estimates for the S & P 500 remain in a confirmed downtrend and that downtrend is accelerating. While earnings estimates are not collapsing, they are on watch for doing so. Second quarter reports should give a better picture of where we are heading. Exposure = 0%, same as last week and shorting the market is a possibility. Sentiment Factors: Investors in the Rydex Funds continued to hold extremely bullish positions. Last Friday they moved strongly into the NASDAQ leveraged long fund. Dangerous! Exposure = -10%, maximum bearish position. NAAIM investors continued in a neutral position. Exposure = 50%, same as last week. Small option buyers reversed direction and became quite bullish. Exposure = 50%, down from 80% last week. Total sentiment factor exposure = 30%, down from 40% last week. Valuation: 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 remained the same last week. Exposure = 50%, same as last week. Total valuation factor exposure = 55%, same as last week. When earnings are trending down, I average the sentiment exposure and the valuation exposure and then subtract 100%. So (30% + 55%)/2 -100% = -57.5% (or 57.5% short). This is down from -52.5% exposure last week. Technicals: 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 remains positive. Total technical adjustments are 0% and exposure = (57.5%), down from (52.5%) last week. Two week moving average is -55%, down from -6% last week. However, my model does not short when NH-NL is positive or neutral so exposure this week is 0%. I remain out of the market (on the long side) until the earnings outlook improves. ![]() 7/1/2012 - Call me a skeptic but I really don't believe the European problems have been solved. The deteriorating earnings outlook is the most important factor influencing my indicators this week: Earnings: Earnings estimates for the S & P 500 have finally slipped into a confirmed negative trend. It is certainly true that the stock market could continue to mount a rally by expanding the P/E ratio but it is very hard for stocks to make meaningful progress when earnings expectations are declining. The only good news is that, next week, I will begin to factor in a contribution from 2013 estimated earnings. This will help but we will have to wait and see if it can mitigate the continuing economic weakness. Exposure = 0%, down from 25% last week and shorting the market is now a possibility. Sentiment Factors: 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 got just a bit more bearish last week. Exposure = 80%, up from 65% last week. Total sentiment factor exposure = 40%, up from 35% last week. Valuation: 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 remained the same last week. Exposure = 50%, same as last week. Total valuation factor exposure = 55%, same as last week. When earnings are trending down, I average the sentiment exposure and the valuation exposure and then subtract 100%. So (40% + 55%)/2 -100% = -52.5% (or 52.5% short). This is a reversal from +36% exposure last week. Technicals: 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 remains positive. Total technical adjustments are 0% and exposure = (52.5%), down from 36% last week. Two week moving average is -8%, down from 28% last week. However, my model does not short when NH-NL is positive or neutral so exposure this week is 0%. I am out of the market until the earnings outlook improves. |
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With my wife on Aruba
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