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Friday, November 7, 2008

Market Meter Changes From Neutral to Slightly Bullish

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

The current readings for each of the six metrics are:

1. U.S. Earnings Yield and Bond Yield Spread:
7.71%-3.69%=+4.02% is Very Bullish.

2. Rest-of-World Earnings Yield and Bond Yield Spread:
8.81%-3.40%=+5.41% is Very Bullish.

3. Real U.S. Earnings & GDP Growth:
a. U.S. Actual Earnings Growth (Year-Over-Year) for Latest 2 Quarters:
-27.6% is Very Bearish
b. U.S. Estimated GDP Growth: Year-Over-Year GDP Growth for Next 2 Qtrs Minus Projected Inflation Rate
(-1.5% GDP Growth - 2.0% Inflation)= -3.5% which is Bearish.

4. Current Vs. Expected P/E Ratios:
Current trailing 12-months P/E for S&P 500 is 13.0 and the expected P/E with trailing 12-mos. inflation at 2.7% is 17.6:
(17.6-13.0)/13.0 = +35.6% is Very Bullish.

5. Market Sentiment:
a. Longer-Term (Price Change vs. 9 months ago for Russell 3000):
(52.21-76.50)/76.50=-31.8% is Very Bearish.
b. Shorter-Term (using NYSE & NASDAQ Avg. 30-Day Advance/Decline Oscillators):
Very Bullish.
c. Shorter-Term (Equity-Only Put/Call Ratio):
Average of Most Recent 21-Day Ratio and Yesterday's Ratio is Bullish.

The average of the longer-term and the two shorter term sentiment indicators provides the result for this metric. Thus, since the first metric is 'very bearish', the second is 'very bullish' and the third is 'bullish', the overall Market Sentiment rating averages as Slightly Bullish.

6. Covered Calls Advisor's Gut Feeling: Neutral

The composite overall average outlook for the six indicators above is SLIGHTLY BULLISH, 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: SLIGHTLY BULLISH. The Corresponding Investing Strategy is: "SELL SLIGHTLY OUT-OF-THE-MONEY COVERED CALLS."

By 'out-of-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% and 2.0% below the options strike price.

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