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Thursday, February 17, 2011

Overall Market Meter Changes from Neutral to Slightly Bullish

Each month during options expiration week, the Covered Calls Advisor re-calculates each of the current values for the nine factors used to determine the "Overall Market Meter" rating. Today the indicator has changed from its prior Neutral rating to a current rating of Slightly Bullish.

As shown in the chart below, the new Overall Market Meter average rating (blue bar at the bottom of the chart) is now Slightly Bullish:

The current Market Meter Average of 3.78 is higher than the 3.33 of last month, and as such changes from the Neutral range (between 2.5 and 3.5) to the Slightly Bullish range (3.5 to 4.5) for establishing covered calls investing positions for the next options expiration month of March 2011. Of the nine factors used, six remained unchanged from last month. The three indicators that changed were:
(1) Interest Rates -- from Slightly Bullish to Bullish; and
(2) P/E Ratios -- from Slightly Bearish to Slightly Bullish; and
(3) Future Earnings Growth -- from Slightly Bullish to Bullish

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Slightly Bullish sentiment is to "on-average sell 2% out-of-the-money covered calls for the nearest expiration month." Thus, new positions for Mar2011 options expiration will be established in accordance with this guideline.

For a more detailed explanation of each of the Covered Calls Advisor's nine indicators, please refer to this prior blog post on that topic -- link. These nine factors can be categorized into macroeconomic (the first 3 indicators in the chart above), momentum (next 2 indicators in the chart), value (next 3 indicators), and growth (the last indicator).

The Covered Calls Advisor is currently tracking two additional factors: (1) The Conference Board's Leading Economic Index; and (2) Estimated Future Inflation -- three sub-factors being tracked here are the money multiplier, the velocity of money, and capacity utilization. A decision on whether or not to add these two factors into the Overall Market Meter rating system will be made within the next two months. There is a reasonably strong likelihood that the Baltic Dry Index will be replaced with the Leading Economic Index.

Your comments or questions/clarifications regarding this post are welcomed.
Please click on the "comments" link below. If you prefer to remain anonymous, email me at the address shown in the upper-right sidebar.

Regards and Godspeed,

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