I'm not going to update my model until data is available for the end of the year.  I will then have year-end figures to refer to during the coming year.
2013 was a banner year for investors and speculators as the market increased substantially without any significant corrections.  Why did the market perform so well?  It really wasn't do to better than expected earnings.  Estimates for 2013 at the beginning of the year were in the $108 - $110 range for the S & P 500 and earnings will be lucky to reach $107 when the final quarter is reported.  Optimism, though, prevailed during the year and estimates for 2014 were held at high levels so investors could always hope for more growth next year.  Other economic indicators improved marginally as the year went on.  GDP was up more than 4% in the third quarter and unemployment declined to 7% as the year concluded.  So, basically, valuation increased substantially as investors grew more optimistic that the economy would improve.
An even more important factor, in my opinion, was the huge money-printing operation conducted by the Federal Reserve during the entire year.  Low interest rates on cash and Treasury securities forced many investors into the stock market in an attempt to replace lost interest income with dividends.  This had the effect of producing bubble-like conditions - especially in the 4th quarter.
My model is a device for controlling risk while taking advantage of stock returns when they are judged to be attractive.  During the first three quarters of the year, my model reflected a mediocre outlook and fluctuated around a 50% market exposure - sometimes 75% and sometimes 25%.  During the fourth quarter, though, exposure has declined to essentially zero as sentiment factors became increasingly bearish.  For the full year, my model returned about 1/2 of the S & P 500 return.  I view those results as somewhat disappointing but, given the fact that there were essentially no corrections in stock prices during the year, the results are not too surprising.
Looking at 2014, I expect a correction in stock prices to begin very soon.  That correction could be substantial and could occur very quickly.  I don't know what the catalyst for such a correction might be - that will become evident as time progresses.  Essentially, I am basing my forecast on valuation and sentiment factors.  Stock prices are high and everyone seems to be already onboard.  To put probabilities on my expectations, I think there is a 75% chance of a greater than 10% correction beginning in the first quarter.  I would assign a 15% chance of a less than 10% correction and only a 10% chance of no correction at all.  Given the position of my sentiment indicators, I would have to consider junking them totally if a noticable correction doesn't occur.  I remain fully hedged.
Happy New Year!

   It takes less and less weakness to bring buyers into the market and maybe the blowoff will continue but my model has gotten as negative as it can get with earnings estimates still moving higher.  I know most speculators think they will continue to ride this trend until it shows evidence of a reversal but, when the reversal comes, it may be more violent than they expect.  Because of seasonal factors I may not actually go short before the end of the year.  However, I remain fully hedged and recommend caution.

Earnings:
Estimates for both 2013 and 2014 remain in flat or downward trends but the fact that I am shifting weight from this year to next is allowing my first earnings indicator to remain positive.
Looking at earnings 52 weeks ahead, estimates are still in an upward trend as optimistic analysts
stay very positive.
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, the gap remains large but it is slowly shrinking.
There is no adjustment for this gap now since it is decreasing.
Total earnings factor exposure and maximum total exposure is therefore 100%, same as
last week.

Sentiment: 
Odd lot investors remain extremely bullish and have reduced shorting to very low levels.  
Exposure remains at -10%, same as last week.
Small option buyers finally went all in last week and bought calls heavily.
Exposure declines to -10%,  down from 5% last week.
NAAIM managers continue to be virtually fully invested in stocks.  
They remain in an extreme bullish position. 
Exposure remains at -10%, same as last week.
Total sentiment factor exposure this week enters an unusual phase as all three of my sentiment indicators are maximum bearish.  When this occurs, I assign an exposure of -20% to my overall model.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the next 5-10 years are below the level of the ten year treasury bond yield.  This factor continues to call for 0 equity exposure.
Percentage of stock prices represented by net current assets remained the same last week.
Exposure remains at 20%, same as last week.
Comparison of stock earnings yield to ten year treasury yield remained the same last week.
Exposure remains at 30%, same as last week.
Total valuation exposure is 17%, same as last week.

With my sentiment indicators at maximum negative, I assign an overall reading for the above three factors of -20%.  This is down from -10% 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.
My trend indicator for new highs - new lows on the Nasdaq remained just slightly negative last week in spite of the rally.
I subtract 25% to account for this factor.
Total technical adjustments this week are +5%, same as last week.

After adjustments, total exposure for the week is -15% or, after rounding, -25%.
This level of exposure does not exceed the current earnings cap and is down from 0% last week.


 

   I'm still traveling but I went ahead and uploaded the latest chart.  In spite of last week's decline, my sentiment measures actually got worse.  I now have two of the three indicators in extreme bearish territory and the third one is close.  Earnings are still OK if you believe the optimistic forecasts but valuation is also poor at current market levels.  I am still fully hedged and would advise the utmost caution here.  My model is still recommending 0 exposure to stocks.

I'm traveling right now so a complete update is not possible but small investors and speculators bought into the decline last week and were rewarded by the bounce on Friday.  They could get just slightly more bullish but they are already pretty much all in.  My sentiment indicators dictate a zero exposure and new-highs - new lows on the Nasdaq are trending down again.  So far, earnings are holding up well so any decline might be just a correction.  But it could be rapid and severe.  Best to be very cautious here.  I am fully hedged.

  Year end rallies and merriment are the conventional wisdom of Wall Street but, if my indicators are correct, the start of a correction is more likely.  While the momentum may keep the market afloat for another week or two, this is a very high risk situation that could deteriorate rapidly.  Just as one note of caution, investors in the Nasdaq leveraged bull fund have 20 times more invested than those brave souls in the leveraged Nasdaq bear fund.  That is as lopsided as it gets and there are numerous other examples of the bullishness exhibited by investors currently.

Earnings:
Estimates for both 2013 and 2014 remain in downtrends but the fact that I am shifting weight from this year to next is allowing my first earnings indicator to remain positive.
Looking at earnings 52 weeks ahead, estimates are still in an upward trend as optimistic analysts stay very positive.
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, the gap remains large but it is slowly shrinking.
There is no adjustment for this gap now since it is decreasing.
Total earnings factor exposure and maximum total exposure is therefore 100%, same as
last week.

Sentiment: 
Odd lot investors are still turning more bullish as the upward pressure continues.  
Exposure declines to 20%, down from 35% last week.
Small option buyers started buying calls more aggresively last week.
Exposure remains at 20%,  same as last week.
NAAIM managers got even more bullish and even went on margin to buy stocks last week. 
They remain in an extreme bullish position.
Exposure remains at -10%, same as last week.
Total sentiment factor exposure this week remains at 0%, same as last week because when one of the sentiment factors is maximum bearish and the other two are neutral or negative I assign a 0 exposure
to this factor.

Valuation:
I have been using two valuation factors that I would consider to be short-term.  This week I am adding a third factor that is long-term in nature.  Basically, the approach looks at P/E ratios on trailing ten year earnings for the S & P 500 and projects an expected return for stocks over the next ten years.  Currently, this projections indicates an expected negative ten year forward return and therefore the valuation exposure for this factor is 0% this week.  To find out more, go to hussmanfunds.com.
Percentage of stock prices represented by net current assets remained the same last week.
Exposure remains at 20%, same as last week.
Comparison of stock earnings yield to ten year treasury yield remained the same last week.
Exposure remains at 30%, same as last week.
Total valuation exposure is 17%, 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 0%, 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.
My trend indicator for new highs - new lows on the Nasdaq turned just marginally positive last week.
There is no current adjustment for this factor.
Total technical adjustments this week are +30%, same as last week.

After adjustments, total exposure for the week is 30% or, after rounding, 25%.
This level of exposure does not exceed the current earnings cap and is the same as last week.