Still Watching And Waiting

   The market has basically flattened out for the last few weeks but volatility has increased.  I continue to believe that the next move of consequence will be down - not up.  My sentiment indicators have been maximum negative for several weeks in a row and the earnings news is neutral at best.  I'm still fully hedged.

Earnings:
Estimates for 2014 remain in  a flattish trend.  More earnings reports and accompaning commentary are necessary before trends can be observed.  For now, my first earnings indicator is still positive.
Looking at earnings 52 weeks ahead, estimates are flattening out and are actually very close to going negative.  At this point, though, the trend is still marginally 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 continue to short at very low levels.   
Exposure remains at -10%, same as last week.
Small option buyers remain very bullish and are strongly purchasing calls. 
Exposure remains at -10%,  same as 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.
My sentiment indicators remain at maximum negative - now for a record five weeks straight.
In the current situation, 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 increased two weeks ago and remains 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 the 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.
I add 20% to account for this factor.
My trend indicator for new highs - new lows on the Nasdaq remained just barely positive last week.
No adjustment is necessary for this factor.
Total technical adjustments this week are +30%, same as last week.

After adjustments, total exposure for the week is +10% or, after rounding, 0%.
This level of exposure does not exceed the current earnings cap and is the same as last week.

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