My model continues to act in a volatile manor as small changes in a couple of indicators cause bigger changes in the model itself. I look at it as though the market is walking a tightrope. It loses its balance briefly but then recovers temporarily. The thing to remember is that it could easily take a huge dive at any moment and I don't know if there is a net down there:
Earnings results continue to be in a declining trend but forward 12 month estimates continue to move slightly higher. There is still a growing trend gap between future and past results so
this indicator is negative and calls for zero exposure. Twelve month forward earnings are still nudging higher and are positive with 100% exposure. Now I am looking at 2013 estimates for my third indicator and they are still trending higher and call for 100% exposure. Total
exposure from the earnings factor is 67%, same as last week.
Rydex leveraged fund investors continued quite bullish but not to previous extremes. Exposure from this indicator remains at 5%, same as last week.
Small option buyers are confused again and remain neutral.
Exposure remains at 50%, same as last week.
NAAIM managers continued to be very optimistic but they softened their optimism just marginally last week.
Exposure increases to 5% this week, up from -10% last
Average of my three sentiment indicators is 20% this week, up from 0% last week.
Percentage of stock prices represented by net current assets stayed the same last week so exposure remains at 40%.
Comparison of stock earnings yield to ten year treasury yield remained the same last week. Exposure remains at 30% this week, 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. Therefore, these three factors call for a market exposure of 36%, up from 0% last week.
My comparison of yields on treasury bonds compared to lower quality corporates has been improving and will probably go positive next week. At this point, though, it is neutral and has a zero impact on technical factors.
New highs - new lows on the Nasdaq are still positive. I add 20% to account for this factor.
Total technical adjustments this week are +20%, up from +10% last week.
After adjustments, total exposure for the
week is 56% or, after rounding, 50% compared to 0% last week.
Richard Moore, CFA
With my wife in Hawaii