Last week will be  remembered as the week the short sellers threw in the towel.  There were large  outflows from the SH (inverse SPY) ETF and an indicator I watch comparing odd  lot short sales to odd lot purchases showed the lowest weekly short sale reading  in the last two years (the length of the data available).  This negative data  continues to be counter-balanced by the continuing positive readings of the  trend-following indicators like NH-NL.  It seems like we are building to some  sort of climax but it remains hard to pinpoint when it will occur.  I want to be  cautious and ready to abandon ship at the slightest provocation:

Earnings:
Earnings estimates for both 2012 and 2013 continue in a downtrend and last twelve month earnings are in a flat trend.  My weighted number, though, continues to be in a positive  trend. 
Exposure remains the same this week at 100%.


Sentiment Factors:
Investors in the Rydex Funds  continued to hold extremely bullish positions that are again
near record  levels.
Exposure = -10%, maximum bearish position.
NAAIM investors turned more bullish again but not enough to change  exposure levels.
Exposure = 5%, same as last week.
Small option buyers got  even more bullish and remained in an extreme bullish posture.  
Exposure =  -10%, same as last week.
Total sentiment exposure remains at -5% this week.   Two of my three sentiment indicators are still in maximum bearish position.   They could get even more bearish, of course, but experience has
taught me to be  very cautious in this risky environment.

Valuation:
Percentage of value  represented by net current assets increased last week.
Exposure = 40%, up from  20% last week.
Comparison of bond yields to stock earnings yields increased  last week as interest rates declined.  Exposure = 30%, up from 20% last week.
Total valuation factor exposure = 35%, up from 20% last week.

With two of my three sentiment factors at maximum negative I assign a total exposure for these 
three factors of -10% this week.  This is the same as last week.
 
Technicals:
The trend in high yield bonds compared to treasuries is still in a very slight uptrend so I add 10%.
I add 20% when NH-NL is positive as it remains currently. 


Total technical adjustments  are
+30% and exposure = 20%, same as last week.

Two week moving average  is
20%, up from 10% last week.    

 9/16/2012 - I learned long ago that  the market is always right.  There is no point in objecting that the market  shouldn't have done what it did.  It is what it is.  But I must confess the  money-printing rally has me confused.  To justify higher stock prices over time  there are two factors to consider.  Will corporate earnings be higher because of  QE3?  If so, we should see increases in earnings estimates.  What about P/E  multiples?  I've heard an argument that, because of a reduction in uncertainty  and additional monetary support, multiples should increase.  Personally, though,  with the government such a huge factor in the economic landscape, I would be  looking for lower multiples - not higher.  I have increased the model's emphasis  on trend-following factors this week as an admission that I haven't been paying enough attention to market momentum but I'm still taking a very cautious approach here:

Earnings:
Earnings estimates for both 2012 and 2013 continue in a downtrend and last twelve month earnings are in a flat trend.  My weighted number, though, continues to be in a positive  trend. 
Exposure remains the same this week at 100%.

Sentiment Factors:
Investors in the Rydex Funds  continued to hold extremely bullish positions.
Exposure = -10%, maximum bearish  position.
NAAIM investors backed off just a bit  before the QE3 announcement and upped their cash
slightly.
Exposure = 5%, up  from -10% last week.
Small option buyers got even more bullish and remained  in an extreme bullish posture.
Exposure = -10%, same as last week.

Total  sentiment exposure is -5% this week, up from -10% last week.  Two of  my three sentiment indicators are  still in maximum bearish position.  They could get even more bearish, of course,  but experience has taught me to be very cautious in this risky  environment.

Valuation:
Percentage of value  represented by net current assets stayed the same last week.
Exposure = 20%, same as last week.
Comparison of bond yields to stock earnings yields declined last week as interest rates increased and the market went  up. 
Exposure = 20%, down from 30% last week.
Total valuation factor exposure =  20%, down from 25% last week.

With two of my three sentiment factors at maximum  negative I assign a total exposure
for these three factors of -10% this week.   This is up from -20% last week.
 
Technicals:
The trend in high yield bonds compared to treasuries is still in an uptrend so I add 10%.
I continue to tinker with my model  and, this week, I am recognizing that I haven't been paying enough attention to  market momentum. So I am adding 20% when NH-NL is positive, as it is this week, instead of the  previous 10%.  

Total technical adjustments  are +30% and exposure = 20%, up from 0% last week.

Two week moving  average is 10%, same as last week.    

Perhaps I need to add a  fifth factor to my model.  The main heading would be Government Meddling and  then the sub-factors would be Money Printing, Bailouts, and Interest Rate  Manipulation.  Those would all be maximum bullish now but my conservative nature  thinks they are all very negative in the longer term.  Even in the short term,  it is good to prevent bankruptcy but increasing commodity prices hurts some  companies and all consumers to some extent.  I guess I'll stay with the current  model for awhile longer:

Earnings:
Earnings estimates for both 2012 and 2013 continue in a downtrend but both were increased last week.  My weighted number continues to be in a positive trend.
Exposure remains the same this week  at 100%.

Sentiment Factors:
Investors in the Rydex Funds  continued to hold extremely bullish positions. 
Exposure = -10%, maximum bearish  position.
NAAIM investors stayed very upbeat to  the extent that their bullish position is now in extreme
territory.
Exposure =  -10%, down from 5% last week.
Small option buyers took a more bullish  position and they too are now in an extreme bullish
posture.  
Exposure =  -10%, down from 5% last week.

Total sentiment exposure is -10% this week.   This is an unusual position that has only occurred a couple of times over the  last 6 years.  Both previous times didn't last long and saw stock prices decline  shortly thereafter.  

Valuation:
Percentage of value  represented by net current assets stayed the same last week.
Exposure =  20%, same as last week.
Comparison of bond yields to stock earnings yields declined last week as interest rates increased and the market went  up. 
Exposure = 30%, down from 50% last week.
Total valuation factor exposure = 25%, down from 35% last week.

With all three sentiment factors at maximum negative I  assign a total exposure for
these three factors of -20%.
 
Technicals:
The trend in high yield bonds compared to treasuries is still in a very slight uptrend so I add 10%.
NH-NL remains positive so I add 10% for that indicator.
Total technical adjustments  are +20% and exposure = 0%, down from 20% last week.

Two week moving  average is 10%, down from 20% last week.    

 9/2/2012 - I try to put myself in  tune with the mindset of those that are buying stocks but I can't seem to feel  much optimism.  Maybe the Fed can pull another rabbit out of the hat without  igniting inflation.  We'll see:

Earnings:
Earnings estimates for 2012 and 2013 continue to slowly decline and my weighted estimate has now turned just slightly  positive because the estimate declines are less than the weighting factor as we  approach 2013.  Can earnings really increase 15.8% over the balance of this year  and then increase 11.8% next year?  I doubt it but I have increased the earning  factor exposure from 50% last week to 100% this week.

Sentiment Factors:
Investors in the Rydex Funds continued to hold extremely bullish positions.
Exposure = -10%, maximum bearish position.
NAAIM investors stayed very confidant and increased their  already high level of stock holdings. Exposure = 5%, same as last week.
Small  option buyers took a more bullish position - enough to move them to an  almost extreme
bullish posture.
Exposure = 5%, down from 20% last  week.
Total sentiment exposure is 0% this week and is now equal to where it  was last April with the S & P 500 at approximately the same level.  This is  the same exposure as last week.
 
Valuation:
Percentage of value represented by net current assets stayed the same last week.
Exposure =  20%, same as last week.
Comparison of bond yields to stock earnings yields improved last week as interest rates declined.  Exposure = 50%, up from 30% last  week.
Total valuation factor exposure = 35%, up from 25% last week.

To  arrive at my exposure number from these factors, I multiply them together and  then take the cube root.  This week, that number is 0%, the same as last  week.
 
Technicals:
The trend in high yield bonds compared to treasuries is still in a very slight uptrend so I add 10%.
NH-NL remains positive so I add 10% for that indicator. 
Total  technical adjustments are +20% and exposure = 20%,
same as last week.

Two  week moving average is 20%, down from 32% last
  week.