Continuing to frustrate the bears, the market hit another new high last week. There are continuing hints, though, that the end is near. For example, there were more stocks down than up on the NYSE last week. Sentiment remains very bearish but this momentum cycle is very hard to break. Quantitative easing is the driver and it looks like that will continue forever - but I wouldn't want to bet much money on that as being the continuing driver of this market.
Estimates for both 2013 and 2014 remain in downtrends but the fact that I am shifting weight from this year to next is allowing my first earnings indicator to remain positive.
Looking at earnings 52 weeks ahead, estimates are still in an upward trend as optimistic
analysts stay very positive.
With both earnings indicators positive, my maximum earnings exposure is 100%.
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 therefore 100%, same as
Odd lot investors are still turning more bullish as the upward pressure continues.
Exposure remains at 35%, same as last week.
Small option buyers dampened their bullishness a little last week.
Exposure remains at 20%, same as last week.
NAAIM managers turned right around and bought more stocks last week. They returned to an extreme bullish position.
Exposure decreases to -10%, down from 5% last week.
Total sentiment factor exposure this week decreases to 0%, down from 20% last week because when one of the sentiment factors is maximum bearish and the other two are neutral or negative I assign a 0 exposure to this factor.
Percentage of stock prices represented by net current assets increased last week.
Exposure increases to 20% from 0% 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%, up from 15% last week.
To combine these three factors, I multiply them together and then take the cube root.
This week, that number is 0%, down from 31% 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.
My trend indicator for new highs - new lows on the Nasdaq
turned just marginally positive last week.
There is no current adjustment for this factor.
Total technical adjustments this week are +30%, up from +5% last week.
After adjustments, total exposure for the week is 30% or, after rounding, 25%.
This level of exposure does not exceed the current earnings cap and is the same as last week.
Richard Moore, CFA
With my wife in Hawaii