Recent weakness and volatility has managed to improve my sentiment indicators, which is good news. The bad news, though, is that earnings expectations for 2013 are in a downtrend. It will be hard for exposure to increase beyond 50% without improving confidence that earnings will really increase going forward:
Earnings results continue to be flat to down as they are reported. The gap between last twelve
month results and future twelve month expectations is still more than 28% and it continues to grow.
This indicator continues to suggest 0% exposure this week.
Twelve month forward earnings are still trending higher as analysts obviously think things will
improve during the first quarter of 2014.
This indicator is still positive at this point with 100% exposure.
2013 estimates are my third indicator and they are now trending lower.
This indicator is now negative and calls for 0% exposure, down from 33% last week.
Total exposure from the earnings factor is 33%, down from 42% last week.
Odd lot investors have moved away from an extreme bearish position as they have increased their levels of shorting. This indicator is still modestly bearish but exposure increases to 20% this week, up from 5% last week.
Small option buyers don't show any strong bias one way or the other. They remain at a neutral
Exposure stays at 50%, same as last week.
NAAIM managers backed off of their bullish stance and increased cash substantially last week.
Exposure increases to 35% this week, up from 5% last week.
Average sentiment exposure this week is 35%, 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 20%, same as last week.
Total valuation exposure is 20%, same as last week.
To combine these three factors, I multiply them together and then take the cube root. This
week, that number is 28%, up from 24% 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 58% or, after rounding, 50% compared to 50% last
Richard Moore, CFA
With my wife in Hawaii