Something For Everyone

 The S & P 500 remains stuck in a tight trading range but the broader market has been performing much more poorly.  The Russell 2000, for example, is down 4.85% year to date.  This is a negative sign but a case can be made for various short term outcomes here.  My model has been downgraded because of technical factors.  Since those technical factors are trend following, they could turn around if the market can move higher but valuation remains a big concern.

Earnings:
Estimates for 2014 are now building a solid record of increases.  I'm not sure why analysts are becoming more positive when last quarter's earnings were very mediocre but ererything looks good at the moment.  As long as this continues, my first earnings indicator is positive.
Looking at earnings 52 weeks ahead, estimates have also increased more substantially 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 reached negative levels and that gap is increasing.
The large and widening gap dictates a reduction in the earnings factor by 25%.
Total earnings factor exposure and maximum total exposure remains at 75%, same as last week.

Sentiment:
The equity put/call ratio has begun to pick up somewhat.  It is a long way from bullish but it is approaching a neutral level. 
Exposure increases to 35%, up from 20% last week.
Small option buyers have definitely gotten more fearful and have increased their put buying.
Exposure remains at 65%, same as last week.
NAAIM managers remain bullish and represent the most bearish of my sentiment indicators.
Exposure remains at 5%, same as last week.
Average exposure from sentiment factors is 35% this week, up from 30% 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 remained unchanged last week.
Exposure remains at 50%, same as last week.
Total valuation exposure is 17%, same as 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 35%, up from 34% 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 finally turned negative last week.  This indicator has not been negative since November of 2012.
I subtract 10% to account for this factor.
My trend indicator for new highs - new lows on the Nasdaq is not operative when NH-NL is neutral or negative.
Total technical adjustments this week are 0%, down from +10% last week.

After adjustments, total exposure for the week is 35% or, after rounding, 25%.
This level of exposure does not exceed the current earnings cap and is down from 50% last week.

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