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Sunday, May 8, 2016

Overall Market Meter Remains "Slightly Bearish"

Today, the Covered Calls Advisor recalculated the current values for each of the seven factors used to determine the "Overall Market Meter" rating.  The result is that the Covered Calls Advisor's current market viewpoint remains at Slightly Bearish.  A graphical representation of the "Overall Market Meter" is shown in the right sidebar on this page.    

The seven factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).
Note: The rating for each of these factors is not subjective.  Each factor is calculated using objective, quantifiable measures.

The current Market Meter average of 2.43 (see blue line at the bottom of the chart above) is in the Slightly Bearish range (Note: the Slightly Bearish range is from 2.25 to 2.99).  This overall value of 2.43 is slightly lower than the 2.57 from the prior analysis conducted in early March this year.

One factor that is Very Bearish is the P/E Ratio.  The current P/E ratio is 22.1 (calculated based on the average of the Operating and As Reported earnings for the past year for the S&P 500).  This is much higher than the expected current P/E ratio of 16.0 (based on the current low 0.9% CPI-U inflation rate for the past year).  The market would have to decline by 27.6% from its current level to reach a P/E ratio of 16.0.  Despite the fact that both macroeconomic factors are Slightly Bullish, it is this important value factor (i.e. P/E ratio) that explains why the Covered Calls Advisor is in no hurry to establish new positions at this time.  

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Slightly Bearish sentiment is to "on-average sell 1% in-the-money covered calls for the next options expiration month".

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

Regards and Godspeed,

Sunday, May 1, 2016

Returns -- Year-to-Date Through April 2016

As shown in the "Year-to-Date 2016" line in the chart below, the Covered Calls Advisor Portfolio (CCAP) has underperformed the benchmark Russell 3000 index by 1.37 percentage points for the first four months of calendar year 2016. 

As a reminder, the Covered Calls Advisor Portfolio is not identical to the advisor's personal portfolio. However, it does provide a comparable overall portfolio return result since all equities in the CCAP are also held in this advisor's personal portfolio. To ensure comparability, all transaction dates and transaction prices herein are identical to those that were established in the Covered Calls Advisor's personal portfolio. The primary difference between the two accounts is the total number of shares held for each equity. This approach is used to preserve the confidentiality of the total value of the Covered Call Advisor's personal portfolio.

The Covered Calls Advisor uses a bottom-line performance measure to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. Here's an example to aid understanding of how the overall portfolio performance is determined: 
If the total CCAP portfolio value was $100,000 at the beginning of the calendar year and $110,000 at the end of that year (and with no deposits or withdrawals having been made), then the 'Total Account Value Return Percent' would be +10.0% [($110,000-$100,000)/$100,000]*100Of course, the actual 'Total Account Value Return Percent' shown also adjusts for any deposits and withdrawals made each month.

If you have any comments or questions, please email me at the address shown in the right sidebar of this blog site.

Regards and Godspeed,