Not much changed last week. The major averages eked out small gains and the average stock was down. Most of my indicators weakened further:
The trend in estimated earnings is still slightly down and that trend is accelerating. It could
improve with a couple of weeks where estimates get raised but that doesn't seem likely.
Exposure = 0%, same as last week and shorting the market is a possibility.
Investors in the Rydex Funds continued to hold extremely bullish positions. They are growing still bolder and seem willing to buy into a very bullish outlook.
Exposure = -10%, maximum bearish position.
NAAIM investors got a little bit more bullish last week.
Exposure = 20%, down from 35% last week.
Small option buyers got a little bit more bullish.
Exposure = 35%, down from 50% last week.
Total sentiment factor exposure = 15%, down from 25% last week.
Percentage of value represented by net current assets stayed the same last week.
Exposure = 60%, same as last week.
Comparison of bond yields to stock earnings yields remained the same last week.
Exposure = 50%, same as last week.
Total valuation factor exposure = 55%, same as last week.
When earnings are trending down, I average the sentiment exposure and the valuation exposure and
then subtract 100%. So (15% + 55%)/2 -100% = -65% (or 65% short). This is down from -60% exposure last week.
Last week showed a change in the trend of high yield bonds to treasuries. It is now in an upward trend and, therefore, I add 10%.
This week I add 10% because NH-NL remains positive.
Total technical adjustments are 20% and exposure = (45%), up from (60%) last week.
Two week moving average is -52.5%, up from -59% last week. However, my model does not short
when NH-NL is positive or neutral so exposure this week is 0%. I remain out of
the market (on the long side) until the earnings outlook improves.
Richard Moore, CFA
With my wife in Hawaii