Monday, March 10, 2008

Market Meter Changes to Neutral

The Covered Calls Advisor conducts weekly reviews of the six key metrics used to determine its U.S. Market Meter Indicator. Today the indicator has changed from its prior Slightly Bullish rating to a current rating of Neutral.

The current readings for the six metrics are:
1. U.S. Earnings and Bond Yield Spread:
5.93%-3.52%=+2.41% is Bullish.
2. Rest-of-World Earnings and Bond Yield Spread:
7.086%-3.99%=+3.10% is Very Bullish.
3. Real Earnings Growth:
(-1.0% Erngs Growth -2.5% Inflation)=-3.5% is Bearish.
4. Current Vs. Expected P/E Ratios:
(18.6-16.85)/16.85 = +10.4% is Slightly Bullish.
5. Investor Sentiment (Price Momentum):
a. Longer-Term (for Russell 3000):
(74.83-87.79)/87.79=-14.8% is Very Bearish.
b. Shorter-Term (using NYSE & NASDAQ Avg. 30-Day Advance/Decline Oscillators):
Slightly Bullish
The average of the longer-term and the shorter term momentum indicators provides the result for this metric. Thus, the overall Investor Sentiment rating is now Slightly Bearish.
6. Covered Calls Advisor's Gut Feeling: Slightly Bearish

The composite overall average outlook for the six indicators above is NEUTRAL, which is now reflected on the 'U.S. Market Meter' Indicator at the top of the sidebar column of this blog. The meter also states the recommended investing strategy for this assessment: "The Covered Calls Advisor says: The Current Overall Stock Market Outlook is: NEUTRAL. The Corresponding Investing Strategy is: SELL AT-THE-MONEY COVERED CALLS."

By 'at-the-money', this advisor means that the covered call positions in a portfolio of near-month covered calls should now be established on-average with the stock price between 1.0% below and 1.0% above the options strike price.

The six factors combined to result in a Neutral overall market view at this time. The bullish readings resulting from the much higher earnings yields in both the U.S. and worldwide compared with substantially lower current interest rates are offset by the negative short-term future corporate earnings outlook as well as the negative current investor sentiment. For further insights into the definitions of each of the six components of the overall market meter, refer to the following two prior articles:
Link to 'Developing an Overall Market Outlook'
Link to 'Changes in Overall Market Outlook'

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