My model is becoming more positive just as market analysts have become more concerned about the earnings picture. No evidence of problems yet but they certainly could surface later:
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 as optimistic analysts stay
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 still slowly declining.
There is no adjustment for the earnings gap so the earnings factor exposure is 100%, the same as last week.
Odd lot investors stayed pretty optimistic but not at extreme levels.
Exposure remains at 5% this week, same as last week.
Small option buyers continued to become more bullish last week. This is a very negative situation and needs to be watched closely.
Exposure declines to 5%, down from 20% last week.
NAAIM managers seemed to panic and raised lots of cash last week.
Exposure increases to 50% this week, up from 20% last week.
The sentiment factor increases to 20% this week, up from 15% last week.
Percentage of stock prices represented by net current assets rebounded last week back to previous levels.
Exposure increases back to 20%, up from 0% last week.
Comparison of stock earnings yield to ten year treasury yield was unchanged last week.
Exposure remains at 30%, same as last week.
Total valuation exposure is 25%, up from 15% 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 28% last week.
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
Total technical adjustments this week are +30%, same as last week.
After adjustments, total exposure for the week is 67% or, after rounding, 75%.
This level of exposure does not exceed the current earnings cap and is up from 50% last
Richard Moore, CFA
With my wife in Hawaii