Old Habits Are Hard To Break

For at least a year the correct market strategy has been to buy every small dip in prices.  It may be true again this time but my model is telling me to still be cautious.  There is no evidence at this point that a bear market is beginning but some of my sentiment indicators show an unusual sense of complacency given the weakness in the market and especially in previous momentum leaders.  I remain fully hedged at this point, awaiting a more favorable risk/reward ratio.

Earnings:
Estimates for 2014 are in a modestly increasing trend.  As long as this continues, my first earnings
indicator is positive.
Looking at earnings 52 weeks ahead, estimates have also increased slowly and the trend remains positive.
With both indicators positive, earnings exposure remains at 100%, same as last week.
Looking at the gap between last twelve month earnings and future 52 week projections,the
gap has been shrinking and continued to shrink last week.
There is no adjustment for this gap now since it is smaller and decreasing.
Total earnings factor exposure and maximum total exposure remains at 100%, same as last week.

Sentiment:
The equity put/call ratio finally moved up on Thursday and Friday but the weekly reading was still pretty low.
Exposure remains at 20%, same as last week.
Small option buyers also increased their put buying modestly last week. 
Exposure remains at 50%, same as last week.
NAAIM managers maintained a very high stock exposure last week.
Exposure remains at -10%, same as last week.
When one of my sentiment indicators is maximum bearish and the other two are negative or
neutral, I assign an exposure level of 0%.  This is the same as last week.

Valuation:
My long term valuation indicator remains negative as expected stock returns over the next 10 years  
are still below the yield on the ten year treasury. 
This factor continues to call for 0 equity exposure.
Percentage of stock prices represented by net current assets remained the same last week.
Exposure remains at 0%, same as last week.
Comparison of stock earnings yield to ten year treasury yield increased last week.
Exposure increases to 70%, up from 50% last week.
Total valuation exposure is 23%, up from 17% last week.

To get a combined exposure for these three factors, I multiply them together and then take the cube root.  This week that number is 0%, same as last week.

Technicals:
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 but are getting close to turning neutral or even negative.
I add 20% to account for this factor.
My trend indicator for new highs - new lows on the Nasdaq remained negative last week.
I subtract 25% to account for this  factor.
Total technical adjustments this week are +5%, same as last week.

After adjustments, total exposure for the week is 5% or, after rounding, 0%.
This level of exposure does not exceed the current earnings cap and is the same as last week.

---