I don't know if the last bear has been converted yet but a new high in the S & P 500 probably shifted a few more holdouts into the bullish camp. It is not clear that a major correction is imminent but the risk-reward ratio here looks unfavorable:
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 27% 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.
This indicator is still positive at this point with 100% exposure.
2013 estimates are my third indicator and they have been pretty flat recently. They are still in an uptrend, 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 got "all in" last week and are now extremely bullish.
Exposure from this indicator goes to -10%, down from 5% last week.
Small option buyers got a bit more bullish last week and are now back to a neutral status.
Exposure decreases to 50% from 65% last week.
NAAIM managers continued to be very optimistic but they have gotten just a bit less so. Still bullish but not as extreme as last week.
Exposure increases to 5% this week, up from -10% last week.
When one of my sentiment factors is maximum bearish and the other two are bearish or neutral, I use 0% as my sentiment exposure factor.
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 0%, down from 36% 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 30% or, after rounding, 25% compared to 75% last
Richard Moore, CFA
With my wife in Hawaii