Wednesday, January 18, 2012

Overall Market Meter Rating Changes from "Neutral" to "Slightly Bullish"

Each month during options expiration week, the Covered Calls Advisor recalculates the current values for each of the eight factors used to determine the "Overall Market Meter" rating. This month, the Overall Market Meter rating changed from Neutral to Slightly Bullish.

The eight factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next three indicators), and
- growth (the last indicator).

The current Market Meter Average of 3.75 (see blue line in chart above) is greater than the 3.38 of last month. The 3.75 is a Slightly Bullish rating (range from 3.5 to 4.5). Six of the eight factors used to determine the Overall Market Meter rating remained unchanged from the prior analysis last month. The factor that most influenced this month's change to Slightly Bullish (from Neutral) was Price Trend. The Price Trend indicator changed from Bearish to Bullish because the current price of the S&P 500 Index has now increased more than +5% above its 150-day SMA(Simple Moving Average) threshold. This factor will remain Bullish until the price of SPY moves to more than 5% below its 150-day SMA. The other factor that changed since last month's Overall Market Meter rating was Future Earnings Growth which declined from Slightly Bullish to Neutral.

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." So with the January 2012 options expiration this week, newly established positions for February 2012 expiration will be established in accordance with this guideline.

Your comments or questions regarding this post (or the details related to any of the eight factors used in this model) are welcomed. Please click on the "comments" link below or email me at the address shown in the upper-right sidebar.