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 changed from Slightly Bearish to a current rating of Neutral. 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).
The rating for each of these factors is not subjective. Each factor is
calculated using objective, quantifiable measures.
The current Market Meter average of 3.14 (see blue line at the bottom of
the chart above) is in the Neutral range (Note: the Neutral range is from 3.10 to 3.59). 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 next options
The Macroeconomic and Momentum factors are Bullish, the Value factors are Bearish, and the Growth factor is Neutral. 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 high at 22.8. This is higher than the expected current P/E ratio of 18.6 (based on the
current 2.2% CPI-U inflation rate for the past year). The market would
have to decline by 18.4% from its current level to reach a P/E ratio of
18.6. This relatively high current market valuation coupled with expected modest sales and earnings growth
over the next year explains why the Covered Calls Advisor Portfolio is now establishing only conservative positions and because of the scarcity of good new investment opportunities as well as the low current implied volatility in options, the portfolio is now only 20% invested and holds 80% in cash.
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
Regards and Godspeed,