A sharp turkey week rally aleviated the short term oversold nature of the market but the trend still looks down to me:
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 100% exposure.
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.
Although finally showing some improvement, Rydex investors are still overweighted in stocks. Exposure from this indicator remains at -10%.
Small option buyers wanted to play the rally last week as they got more bullish. Not enough to change the exposure, though, which remains at 65%, same as last week.
NAAIM managers also turned more bullish. Exposure is 20% this week, down from 35% last week.
Total sentiment factor exposure is 25% this week, down from 30% 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 decisively reversed last week as the market advanced and yields went up. Exposure is 50% this week, down from 80% last
Total valuation exposure is 45%, down from 60% 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 42%, down from 49% last week.
My comparison of yields on treasury bonds compared to lower quality corporates turned negative last week. It goes from a zero impact to a negative 10%.
New highs - new lows on the Nasdaq improved but remains negative. I subtract 10% to account for this.
Total technical adjustments this week are -20% and were -10% last week.
After adjustments, total exposure for the week is 22%, down from 39% last week.
I've decided to simply use the weekly exposure figures rather than a two week average so we are at 22% this week compared to 46% last week.
Richard Moore, CFA
With my wife in Hawaii