![]() It takes less and less weakness to bring buyers into the market and maybe the blowoff will continue but my model has gotten as negative as it can get with earnings estimates still moving higher. I know most speculators think they will continue to ride this trend until it shows evidence of a reversal but, when the reversal comes, it may be more violent than they expect. Because of seasonal factors I may not actually go short before the end of the year. However, I remain fully hedged and recommend caution. Earnings: Estimates for both 2013 and 2014 remain in flat or downward trends 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 last week. Sentiment: Odd lot investors remain extremely bullish and have reduced shorting to very low levels. Exposure remains at -10%, same as last week. Small option buyers finally went all in last week and bought calls heavily. Exposure declines to -10%, down from 5% last week. NAAIM managers continue to be virtually fully invested in stocks. They remain in an extreme bullish position. Exposure remains at -10%, same as last week. Total sentiment factor exposure this week enters an unusual phase as all three of my sentiment indicators are maximum bearish. When this occurs, I assign an exposure of -20% to my overall model. Valuation: My long term valuation indicator remains negative as expected stock returns over the next 5-10 years are below the level of the ten year treasury bond yield. 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 20%, same as 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 17%, same as last week. With my sentiment indicators at maximum negative, I assign an overall reading for the above three factors of -20%. This is down from -10% 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. I add 20% to account for this factor. My trend indicator for new highs - new lows on the Nasdaq remained just slightly negative last week in spite of the rally. 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 -15% or, after rounding, -25%. This level of exposure does not exceed the current earnings cap and is down from 0% last week.
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With my wife on Aruba
December 2019 Categories |