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Sunday, July 20, 2008

Market Meter Changes from Slightly Bearish to Neutral

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

The current readings for each of the six metrics are:
1. U.S. Earnings and Bond Yield Spread:
5.92%-4.08%=+1.84% is Slightly Bullish.
2. Rest-of-World Earnings and Bond Yield Spread:
7.692%-4.07%=+3.62% is Very Bullish.
3. Real Earnings Growth:
(+0.5% Erngs Growth - 3.0% Inflation)=-2.5% is Bearish.
4. Current Vs. Expected P/E Ratios:
(18.6-16.9)/16.9 = +10.1% is Slightly Bullish.
5. Investor Sentiment (Price Momentum):
a. Longer-Term (Price Change vs. 9 months ago for Russell 3000):
(73.33-86.64)/86.64=-15.4% is Very Bearish.
b. Shorter-Term (using NYSE & NASDAQ Avg. 30-Day Advance/Decline Oscillators): Neutral.
The average of the longer-term and the shorter term momentum indicators provides the result for this metric. Thus, since one metric is 'very bearish' while the other is 'neutral', the overall Investor Sentiment rating is now Slightly Bearish.
6. Covered Calls Advisor's Gut Feeling: Neutral

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 covered calls investing strategy that corresponds with 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.

1 comment:

  1. Jeff, I'm a bit more bearish. I'm writing mostly in the market calls on dividend stocks I don't want to be called. If they go down, that's ok as long as my long-term outlook, which is bullish, doesn't for change for individual stocks. Long-term=1 to 2 years.