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Author: roguecfa One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 252059  
Subject: Four Factor Model Weekly Update Date: 10/7/2012 4:27 PM
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This model was introduced at message 235565.
Graphs (not updated at this time) are available at http://theastuteinvestor.com/_wsn/page4.html

Still traveling and enjoying the fall colors in Canada. My indicators are conflicted between overly bullish sentiment from small investors and speculators on the one hand and a continuing uptrend in stock prices on the other hand. I still consider risks here to be well above average:

Earnings:
Earnings estimates for the S & P 500 increased nicely last week – still within the context of downtrends for both this year and next. The outlook remains very questionable and third quarter results could knock down estimates substantially. Last twelve month results continue to be in an essentially flat trend and have been for almost one year. Exposure remains the same this week at 100% because the weighted average is increasing as 2013 estimates are factored into the mix.

Sentiment Factors:
Investors in the Rydex Funds continued to hold extremely bullish positions that are at record levels. Exposure = -10%, maximum bearish position.
NAAIM investors remain very bullish but not extremely so. Exposure = 5%, same as last week.
Small option buyers trimmed back their bullishness just a bit but they are still very bullish. Exposure = 5%, up from -10% last week.
Total sentiment exposure has improved from -5% last week to 0% this week. Only one of my sentiment indicators is still in extreme territory but the other two are close and I still want to be very cautious here.

Valuation:
Percentage of value represented by net current assets decreased last week. Exposure = 40%, down from 60% last week.
Comparison of bond yields to stock earnings yields did not change last week. Exposure = 50%, same as last week. Total valuation factor exposure = 45%, same as last week.

I combine these three factors by multiplying them together and then taking the cube root. These factors, therefore, lead to a 0% exposure, up from -10% last week.

Technicals:
The trend in high yield bonds compared to treasuries is still in an uptrend so I add 10%.
I add 20% when NH-NL is positive as it remains currently.
Total technical adjustments are +30% and exposure = 30%, up from 20% last week.

Two week moving average is 25%, up from 20% last week.
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