7/29/2012 - I really hope that Europe can work through its problems but I really doubt that the ECB can solve them by printing money. In any event, my indicators still are signaling extreme caution:
The trend in estimated earnings is still slightly down and that trend is accelerating. It could improve with a couple of weeks where estimates get raised but that doesn't seem likely.
Exposure = 0%, same as last week and shorting the market is a possibility.
Investors in the Rydex Funds continued to hold extremely bullish positions. Week after week they continue to hold large positions in the NASDAQ leveraged fund.
Exposure = -10%, maximum bearish position.
NAAIM investors got still more bullish last week.
Exposure = 5%, down from 20% last week.
Small option buyers maintain a slight bullish posture.
Exposure = 35%, same as last week.
Total sentiment factor exposure = 10%, down from 15% last week.
Percentage of value represented by net current assets stayed the same last week.
Exposure = 60%, same as last week.
Comparison of bond yields to stock earnings yields remained the same last week.
Exposure = 50%, same as last week.
Total valuation factor exposure = 55%, same as last week.
When earnings are trending down, I average the sentiment exposure and the valuation exposure and
then subtract 100%. So (10% + 55%)/2 -100% = -67.5% (or 67.5% short). This is down from -65% exposure last week.
The trend in high yield bonds compared to treasuries is still in a very slight uptrend so I add 10%.
This week I subtract 10% because NH-NL has gone negative.
Total technical adjustments are 0% and exposure = (67.5%), down from (45%) last week.
Two week moving average is -56%, down from -53% last week. My model enters the short side of
the market this week, buying a 56% position in SH.
Richard Moore, CFA
With my wife in Hawaii