Where Is It?

The plane is still missing and so is the decline my model forecasted last week.  Investors just can't get enough of this market so I suffered an opportunity loss last week.  My concern, though, is about real losses - the kind that come with a severe market decline.  My model continues to be very cautious and is keeping me out again this week.  Last Friday's market action is a harbinger of bad things to come.

Earnings:
Estimates for 2014 are in a modestly increasing trend.  As long as this continues, my first earnings indicator is positive.
Looking at earnings 52 weeks ahead, estimates have also increased slowly 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
been shrinking and continued to shrink last week.
There is no adjustment for this gap now since it is smaller and decreasing.
Total earnings factor exposure and maximum total exposure remains at 100%, same as last week.
  
Sentiment: 
Because of concern about the validity of the odd lot data, I have elected to replace that sentiment indicator.  I am replacing it with the equity put/call ratio.  This data series has been around forever and is still very predictive.  There is no impact on my model this week as the result of this change.  The equity put/call ratio continues to show very a very bullish mindset on the part of option buyers.  It is not an extreme situation, however.
This indicator shows a 5% exposure this week and that is the same level as last week..
Small option buyers also remained bullish last week. 
Exposure remains at 20%, same as last week.
NAAIM managers continued to hold their essentially fully invested position last week.
Exposure remains at -10%, same as last week.
When one of my sentiment indicators is maximum bearish and the other two are negative or
neutral, I assign an exposure level of 0%.  This is the same as 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 decreased last week as the market advanced and interest rates increased.
Exposure declines to 50%, down from 70% last week.
Total valuation exposure is 17%, down from 23% 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 0%, 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 slightly negative last week in spite of the market advance.
I subtract 25% to account for this factor.
Total technical adjustments this week are +5%, same as last week.

After adjustments, total exposure for the week is 5% 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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