Correction Over?

  After a Blue Monday the market snapped back later in the week.  The damage inflicted on the bulls was sufficient to turn my sentiment indicators almost neutral.  It is really too early to tell if the correction has farther to run but I am willing to take some positions at this point.  I will continue to watch the rally for clues.  One negative last week was the poor action of the average stock compared to the major averages.  .

Earnings:
Estimates for 2014 remain in  a flattish trend.  Most companies have reported earnings for 2013 and most have guided modestly higher for this year.  This is not really a surprise and leaves my first earnings indicator just modestly positive.
Looking at earnings 52 weeks ahead, estimates remain in a marginally negative trend.  It is still not a clear downtrend at this point so I am still calling this indicator neutral for the time being.
With one indicator positive and the other neutral, my maximum earnings exposure is
75%, same as last week.
Looking at the gap between last twelve month earnings and future 52 week projections,the gap has been shrinking and continued to shrink last week.
There is no adjustment for this gap now since it is smaller and decreasing.
Total earnings factor exposure and maximum total exposure remains at 75%, same as last week.

Sentiment: 
Odd lot investors became still more concerned last week and increased their shorting
levels some more.
Exposure increases to 50%, up from 20% last week.
Small option buyers are still bullish but have started buying more puts. 
Exposure increases to 20%,  up from 5% last week.
NAAIM managers continued to panic last week and increased their cash position further. They are now in a neutral position.
Exposure increases to 50%, up from 5% last week.
My sentiment indicators continued to improve last week and are now almost neutral.
Sentiment exposure increases to 40%, up from 10% last week.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the
next 5-10 years are the same as 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 70%, same as last week.
Total valuation exposure is 30%, same as last week.

To get a combined exposure for these three factors, I multiply them together and then take the cube root.  This week that number is 45%, up from 28% 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 in a negative position 
last week.
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 50% or, after rounding, 50%.
This level of exposure does not exceed the current earnings cap and is up from 25% last
week.

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