The shutdown goes on but the level of complacency among small investors and speculators is surprisingly high. The "buying opportunity" mentality persists and could lead to a blowoff if the situation is settled soon. Meanwhile, market internals are weakening.
Estimates for 2013/2014 seem to have stalled but remain in a positive trend.
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, 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
Odd lot investors stayed complacent and modestly bullish last week.
Exposure remains at 35%, same as last week.
Small option buyers continued to buy calls at a pretty high level, but not extreme.
Exposure remains at 20%, same as last week.
NAAIM managers put even more cash to work last week.
Exposure decreases to 5% this week, down from 20% last week.
The sentiment factor declines to 20% this week, down from 25% last week.
Percentage of stock prices represented by net current assets remains at the lowest level possible.
Exposure remains at 0%, same as last week.
Comparison of stock earnings yield to ten year treasury yield remained neutral last week.
Exposure remains at 50%, same as last week.
Total valuation exposure is 25%, 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%, down from 40% 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.
My trend indicator for new highs - new lows on the Nasdaq remained positive through most of last week but, by Friday, they had gone modestly negative.
I subtract 25% from my exposure to account for this factor.
Total technical adjustments this week are +5%, down from +30% last week.
After adjustments, total exposure for the week is 42% or, after rounding, 50%.
This level of exposure does not exceed the current earnings cap and is down from 75% last week.
Richard Moore, CFA
With my wife in Hawaii