Euphoria reins as the market continues to make new highs. As forecast last week, pessimism on the part of options buyers particularly set the stage for additional gains. They got more optimistic last week but not enough to disrupt the uptrend unless earnings show further deterioration.
Earnings results continue to be flat to down as they are reported. The gap between last twelve
month results and future twelve month expectations is now more than 28% and it continues to grow.
This indicator continues to suggest 0% exposure this week.
Twelve month forward earnings are still trending higher as analysts obviously think things will improve as the year goes along and during the first quarter of 2014.
This indicator is still positive at this point with 100% exposure.
2013 estimates are my third indicator and they showed another decline last week. The uptrend is coming into question and it wouldn't take much to turn this indicator to neutral or negative.
For now, though, this indicator continues to call for 100% exposure.
Total exposure from the earnings factor is 67%, same as last week.
Rydex leveraged fund investors remained very bullish last week.
Exposure from this indicator remains at -10%, same as last week.
Small option buyers reversed their pessimism to some extent. They are by no means bullish, though.
Exposure declines to 65%, down from 80% last week.
NAAIM managers flipped back to a more bullish stance.
Exposure declines to 5% this week, down from 20% last week.
Average sentiment factor exposure this week is 20%, down from 30% last week.
Percentage of stock prices represented by net current assets remained the same last week so
exposure continues at 20%, same as last week.
Comparison of stock earnings yield to ten year treasury yield remained the same last week.
Exposure remains at 50%, same as last week.
Total valuation exposure is 35%, same as last week.
To combine these three factors, I multiply them together and then take the cube root. This
week, that number is 36%, down from 41% 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.
Total technical adjustments this week are +30%, same as last week.
After adjustments, total exposure for the week is 66% or, after rounding, 75% compared to 75% last
Richard Moore, CFA
With my wife in Hawaii