It certainly could be a blow-off but my sentiment indicators are not uniformly bearish. My model calls for a continuing exposure to stocks until it becomes more obvious that earnings are turning down:
Earnings results continue to be flat as they are reported. The gap between last twelve month results and future twelve month expectations is still almost 27% and it continues to grow. This indicator continues to suggest 0% exposure this week.
Twelve month forward earnings are still trending higher but declined just marginally again last week. This indicator is still positive at this point with 100% exposure.
2013 estimates are my third indicator and they were decreased just marginally last week. They are still in an uptrend, though.
This indicator continues to call for 100% exposure.
Total exposure from the earnings factor is 67%, same as last week.
Rydex leveraged fund investors maintained their bullish posture last week, but they are not in extreme territory.
Exposure from this indicator stays at 5%, same as last week.
Small option buyers continued to exhibit some concern but they became a little more bullish. Exposure remains at 65%, same as last week.
NAAIM managers continued to be very optimistic and my indicator remains in extreme negative territory.
Exposure remains at -10% this week, the maximum bearish level.
Total sentiment exposure is 20% this week, same as last week.
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 as interest rates jumped up to 2.05%.
Exposure decreases to 30%, down from 50% last week.
Total valuation exposure is 25%, down from 35% last week.
To combine these three factors, I multiply them together and then take the cube root. This week, that number is 32%, down from 36% 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 this factor.
Total technical adjustments this week are +30%, same as last week.
After adjustments, total exposure for the week is 62% or, after rounding, 50% compared to 75% last week.
Richard Moore, CFA
With my wife in Hawaii