I think the rally is just about over. My indicators say that it might be best to get out temporarily and watch from the sidelines. Given the news background, a volatile, trading market is about the best we can expect:
The divergence between last twelve month earnings and projected earnings for the next 52 weeks just grows and grows. This is negative and results in a continuing zero exposure from this indicator.
Twelve month forward earnings are still nudging higher and are positive with
My hybrid method that looks at this year's estimates and
weights in 2013 in the second half is also positive and calls for 100% exposure.
Total exposure from the earnings factor is 67%, same as last week.
Rydex leveraged fund investors are backing off their bullish stance but are still in very negative territory. That will probably change next week but it hasn't happened yet.
Exposure from this indicator remains at -10%.
Small option buyers continued to get more bullish and it was enough to move the exposure down.
Exposure goes to neutral at 50%, down from 65% last week.
NAAIM managers became a bit more concerned.
Exposure is 35% this week, up from 20% last week.
When one of my sentiment factors is maximum bearish and the other two are neutral or bearish I use a 0% exposure from this factor. That is down from 25% last week.
Percentage of stock prices represented by net current assets stayed the same last week so exposure remains at 40%.
Comparison of stock earnings yield to ten year treasury yield stayed the same last week. Exposure is 50% this week, same as last week.
Total valuation exposure is 45%, same as last week.
To combine these three factors, I multiply them together and then take the cube root. Therefore, these three factors call for a market exposure of 0%, down from 42% last week.
My comparison of yields on treasury bonds compared to lower quality corporates stayed negative last week. I subtract 10% to account for this.
New highs - new lows on the Nasdaq is on the verge of giving another whipsaw signal. It is not yet positive though and I regard it as neutral. There is no impact from this indicator this week.
Total technical adjustments this week are -10% and were -20% last week.
After adjustments, total exposure for the
week is -10% (10% short), down from +22% last week.
Richard Moore, CFA
With my wife in Hawaii