It is sure beginning to look like a textbook blowoff. I can't find much that is positive other than the fact that the market continues to go up and the trend is a powerful friend. It is true that earnings estimates 52 week ahead continue to advance but I don't have much confidence that those results can be achieved. The slight improvement in my sentiment indicators accounts for the uptick in exposure this week.
Estimates for both 2013 and 2014 remain in downtrends but the fact that I am shifting
weight from this year to next is allowing my first earnings indicator to remain positive.
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,
the gap remains large but it is slowly shrinking.
There is no adjustment for this gap now since it is decreasing.
Total earnings factor exposure and maximum total exposure is therefore 100%, same as
Odd lot investors are finally beginning to joint the party as they got a bit more bullish.
Exposure decreases to 35%, down from 50% last week.
Small option buyers dampened their bullishness a little last week.
Exposure increases to 20%, up from 5% last week.
NAAIM managers raised a small amount of cash last week and are no longer in an extreme position.
Exposure increases to 5%, up from -10% last week.
Total sentiment factor exposure this week incrases to 20%, up from 0% last week.
Percentage of stock prices represented by net current assets fell back again last week.
Exposure declines to 0% from 20% last week.
Comparison of stock earnings yield to ten year treasury yield remained the same last week.
Exposure remains at 30%, same as last week.
Total valuation exposure is 15%, down from 25% last week.
To combine these three factors, I multiply them together and then take the cube root.
This week, that number is 31%, up from 0% 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 in negative position
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 36% or, after rounding, 25%.
This level of exposure does not exceed the current earnings cap and is up from 0% last week.
Richard Moore, CFA
With my wife in Hawaii