Not much movement in stock prices last week as recent gains were consolidated.  The outlook is still basically positive but we are getting very close to some extremes in sentiment.

Earnings:
Estimates for 2013/2014 continued a modest improvement and remain in a positive trend.
Looking at earnings 52 weeks ahead, estimates are still in an upward trend but are
decelerating.  The indicator is still positive, however.
With both earnings indicators positive, my maximum earnings exposure is 100%.
Looking at the gap between last twelve month earnings and future 52 week projections, while the gap is larger than I would like to see, it is declining now.  Earnings over the last year have finally surpassed their previous peak reached over one year ago.
There is no adjustment for the earnings gap so the earnings factor exposure is 100%, the same as last week.
 
Sentiment: 
Odd lot investors have become more optimistic in view of the positive market and have reduced shorting substantially.  They are very close to an extreme position now.
Exposure remains at 5% this week, same as last week.
Small option buyers remain in a neutral position, with call buying and put buying about at normal levels. 
Exposure remains at 50%,  same as last week.
NAAIM managers have become scared about missing the rally and rushed into stocks last week.  
Exposure declines to 5% this week, down from 50% last week.
Average sentiment exposure this week is 20%, down 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 remained depressed last week in view of the sharp increase in interest rates.
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 34%, down from 41% 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 64% or, after rounding, 75%.
This level of exposure does not exceed the current earnings cap and is the same as last week.

I'm on vacation this week and there is no change to my model's recommended exposure of 75%.  Earnings continue to look better but sentiment is rapidly turning overly bullish again.  More earnings reports next week will help refine the outlook.

 The market acts impressively and wants to look on the bright side.  Earnings expectations improved last week and, even though it is hard to see how analysts get to their large increases, it doesn't make sense to fight it as long as the trend is positive.

Earnings:
Estimates for 2013/2014 improved last week and are now in a modestly positive trend.
Looking at earnings 52 weeks ahead, estimates are still in an upward trend but are decelerating.  The
indicator is still positive, however.
With both earnings indicators positive, my maximum earnings exposure is 100%.
Then, I consider the gap between reported earnings over the last year and earnings 52 weeks ahead.  That gap declined a bit last week but it is still around 28% and trending higher.
When the gap is more than 20% and growing I subtract 25% from my maximum earnings exposure, leading to a maximum exposure of 75% for the earnings factor and this also represents a cap on total exposure of this model.  This is up from 50% last week.
 
Sentiment: 
Odd lot investors have become more optimistic in view of the positive market and have reduced shorting substantially.
Exposure declines to 20% this week, down from 50% last week.
Small option buyers have become more cautious and have reduced their call buying. 
They remain at a neutral sentiment level.
Exposure remains at 65%,  same as last week.
NAAIM managers got caught with a pretty high cash position last week and reduced it somewhat.  
Exposure declines to 65% this week, down from 80% last week.
Average sentiment exposure this week is 50%, down from 65% 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 depressed last week in view of the sharp increase in interest rates.
Exposure remains at 10%, same as last week.
Total valuation exposure is 15%, same as last week.

To combine these three factors, I multiply them together and then take the cube root. 
This week, that number is 38%, 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.
Total technical adjustments this week are +30%, same as last week.

After adjustments, total exposure for the week is 68% or, after rounding, 75%.
This level of exposure does not exceed the current earnings cap and is up from 50% last week.

 Optimism was thick on Wall Street last week as the nation celebrated another birthday.  It looks like the positive future outlook has gone about as far as it can by itself.  Now what is needed is positive earnings comments from reporting companies.  We should find out if that is possible as second quarter results are reported starting this week.

Earnings:
I have revamped my earnings model section in order to make it simpler and cleaner.
I will be using the same indicators as before but organizing them a bit differently.
First, looking at earnings estimates for this year, they are still in a modest decline.  I am now starting to factor in 2014 expectations because we are in the second half.  Still, we are in a modest decline and the indicator is neutral.
Looking at earnings 52 weeks ahead, estimates are still in an upward trend but are decelerating.  The indicator is still positive, however.
With one indicator positive and one indicator neutral, my maximum earnings exposure is 75%.
Then, I consider the gap between reported earnings over the last year and earnings 52 weeks ahead.  That gap is still more than 28% and it is growing.
When the gap is more than 20% and growing I subract 25% from my maximum earnings exposure, leading to a maximum exposure of 50% for the earnings factor.
This is also a cap that will be imposed on total exposure if it is greater than the cap.   
 
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 remains at 65%,  same as last week.
NAAIM managers have gotten quite a bit more concerned and have increased their cash position significantly.  
Exposure increases to 80% this week, up from 65% last week.
Average sentiment exposure this week is 65%, up from 60% 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 in view of the sharp increase in interest rates.
Exposure declines to 10%, down from 20% last week.
Total valuation exposure is 15%, 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%, 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, 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.

Imposing the current cap because of the uncertain earnings picture leads to total exposure this week of 50%, up from 25%