Virtually all the small investors and speculators that I follow are wildly bullish now but the option traders are stubbornly staying neutral or even slighly bearish. The expectation of a correction is also almost universal so something has to give. It will ultimately depend on earnings and that picture looks more and more like estimates have to come down.
Earnings results continue to be flat to down as they are reported. The gap between last twelve month results and future twelve month expectations now more than 27% and it continues to grow. This indicator continues to suggest 0% exposure this week.
Twelve month forward earnings are still trending higher but declined just marginally again last week. This indicator is still positive at this point with 100% exposure.
2013 estimates are my third indicator and they were decreased just marginally last week. They
are still in an uptrend, though.
This indicator continues to call for 100% exposure.
Total exposure from the earnings factor is 67%, same as last week.
Rydex leveraged fund investors maintained their bullish posture last week and that optimism hit record levels last Tuesday. The trend, though, is still not in extreme territory.
Exposure from this indicator stays at 5%, same as last week.
Small option buyers continued to exhibit some concern as referenced above. They are now just marginally bearish.
Exposure increases to 80%, up from 65% last week.
NAAIM managers continued to be very optimistic and my indicator remains in extreme negative territory.
Exposure remains at -10% this week, the maximum bearish level.
Total sentiment exposure is 25% this week, up from 20% last week.
Percentage of stock prices represented by net current assets remained the same last week so
exposure continues at 20%, same as 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 25%, same as last week.
To combine these three factors, I multiply them together and then take the cube root. This week, that number is 35%, up from 32% 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.
Total technical adjustments this week are +30%, same as last week.
After adjustments, total exposure for the week is 65% or, after rounding, 75% compared to 50% last week.
Richard Moore, CFA
With my wife in Hawaii