The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Mechanical Investing

URL:  http://boards.fool.com/four-factor-model-weekly-update-30604656.aspx

Subject:  Four Factor Model Weekly Update Date:  3/24/2013  3:19 PM
Author:  roguecfa Number:  242440 of 253128

Explanations of this model and performance figures for 2013 are available at www.wallstreetmodel.com.

Another week and another foreign bank meltdown but no one is concerned about the impact on the economy of the US. The market gyrates but, as long as earnings are perceived to be increasing this year, the bulls remain in control.

Earnings:
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 were decreased just marginally again last
week. 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.

Sentiment:
Rydex leveraged fund investors maintained their bullish posture last week. The trend, though, is still not in extreme territory.
Exposure from this indicator stays at 5%, same as last week.
Small option buyers got a bit more bullish last week but are still on the bearish side of neutral.
Exposure decreases to 65% from 80% last week.
NAAIM managers continued to be very optimistic and my indicator remains in extreme negative territory.
Exposure remains at -10% this week, the maximum bearish level.
Total sentiment exposure is 20% this week, down from 25% last week.

Valuation:
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 increased last week as interest rates declined.
Exposure increases to 50%, up from 30% last week.
Total valuation exposure is 35%, up from 25% last week.

To combine these three factors, I multiply them together and then take the cube root. This week, that number is 36%, up from 35% 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.
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 week.
Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us