It's Not Too Late

  There were some minor improvements in my model last week but not enough to call for any increase in exposure to the stock market at this time.  This correction should have farther to go.  The real question is whether the correction will turn into a more serious bear market.  The jury is still out but there are some disturbing developments on the earnings front.  I remain fully hedged.

Earnings:
Estimates for 2014 remain in  a flattish trend.  More earnings reports and accompaning commentary are necessary before trends can be observed.  For now, my first earnings indicator is still positive.
Looking at earnings 52 weeks ahead, estimates have now gone into a marginally negative trend.  It is not a clear downtrend at this point so I am calling this indicator neutral for the time being. 
With one indicator positive and the other neutral, my maximum earnings exposure is 75%, down from 100% last week.
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 now 75%, down from 100% last week.

Sentiment: 
Odd lot investors became a tiny bit more concerned last week and increased their shorting levels somewhat. 
Exposure increases to 5%, up from -10% last week.
Small option buyers remain very bullish but have also backed off just a bit from their previous wildly bullish stance.
Exposure increases to 5%,  up from -10% last week.
NAAIM managers continue to be virtually fully invested in stocks. 
They remain in an extreme bullish position.
Exposure remains at -10%, same as last week.
My sentiment indicators improved last week but they are a long way from being bullish.
Sentiment exposure increases to 0%, up from -20% last week.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the next 5-10 years are below 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 increased sharply last week as the market declined and interest rates also moved lower.
Exposure increases to 70%, up from 30% last week.
Total valuation exposure is 30%, up from 17% 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 0%, up from -20% 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 went into a negative position last week.
I subtract 25% 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 +5% or, after rounding, 0%.
This level of exposure does not exceed the current earnings cap and is the same as last week.

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