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 changes from Slightly Bullish to Neutral.
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 3.50 (see blue line in chart above) is below the 3.75 average of last month. The 3.50 is a Neutral rating (range from 2.51 to 3.50). Six of the eight factors used to determine the Overall Market Meter rating were unchanged from the prior analysis last month. The two factors that changed were: (1) Interest Rates changed from Neutral to Slightly Bearish; and (2) P/E Ratios changed from Neutral to Slightly Bearish.
This is the first change in the Overall Market Meter rating since January 18th, 2012. During these past 8 months that the rating was Slightly Bullish, the benchmark Russell 3000 index increased by 13.4%.
As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the nearest expiration month." So with the September 2012 options expiration, newly established positions for October 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.
Regards to All and Godspeed,