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 3.00 (see blue line at the bottom of the chart above) is in the Slightly Bearish range (Note: the Slightly Bearish range is from 2.35 to 3.09).
Both of the value-related factors are now Very Bearish. The current P/E ratio for the S&P 500 (based on the average of the Operating and As Reported earnings for the past year) is very high at 23.9. This is much higher than the expected current P/E ratio of 18.6 (based on the current 2.1% CPI-U inflation rate for the past year). The market would have to decline by 22.2% from its current level to reach a P/E ratio of 18.6. Despite the fact that most other factors are Bullish, these two Very Bearish value factors (i.e. P/E Ratio and the Total Market to GDP Ratio) coupled with an expectation of modest sales and earnings growth over the next year explains why the Covered Calls Advisor Portfolio is currently 25% invested and 75% in cash 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,