- 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 current Market Meter average of 1.43 (see blue line at the bottom of the chart above) is in the Bearish range (Note: the Bearish range is from 0.75 to 1.50). This is the identical total to the prior analysis done 3 months ago but there were four changes to individual factors:
- 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).
So what is our current Covered Calls investing strategy? Based on the Covered Calls Advisor's "Bearish" Overall Market Meter (see right sidebar), the corresponding strategy is to "on-average sell between 4% and 7% in-the-money Covered Calls for options
expiration dates during the next month".
I agree with the 'Bearish' Overall Market Meter reading. Consequently, I plan to continue following my process which is, when Bearish, to establish in-the-money Covered Calls positions. It is generally agreed that The Federal Reserve's policy of Quantitative Easing (i.e. QE) during the most recent years provided a consistent tailwind to the stock market. Since the Fed has now begun reversing policies to: (1) regular increases in the Federal Funds rate to try to obtain control of inflation, but which will most likely be accompanied by a deceleration beginning this year in corporate earnings growth rates compared with their growth rates the past two years; and (2) Quantitative Tightening which will likely have the effect of being a headwind (the opposite effect that the QE tailwind was) for the stock market. In addition, despite the current bear market, the stock market's current overall valuation remains historically high by several metrics, including the two valuation factors used in my Overall Market Meter analysis (i.e. Total-Market- Cap-to-GDP ratio and the Trailing-Twelve Montths P/E ratio) both of which continue as headwinds to the overall market.
Corporate earnings trends are perhaps the single most important factor in stock market performance and starting in another two weeks we will begin to receive Q3 2022 earnings reports and a majority of reports will be released during the next 2 months--so I intend to conduct my next Overall Market Meter analysis in about two months.
Note: If you haven't recently carefully read the 3 linked blog posts included in this paragraph, please do so.
I agree with Ben Graham and with the content of this article: link -- that it is impossible to successfully time the market on a consistent basis. But I cannot seem to totally ignore my need to have an opinion on its most likely upcoming direction. As Covered Calls investors, we need to select a strike price for every position we establish. Some Covered Calls investors avoid this important strike price selection decision entirely by always picking the same strike price every time (for example, the closest to at-the-money strike price, or one strike out-of-the-money). But I've never been able to do that. I prefer a more active decision-making approach; so I select strike prices based on my Overall Market Meter sentiment indicator -- at-the-money strike prices if the Overall Market Meter is Neutral, out-of-the-money if Bullish, and in-the-money if Bearish. Sometimes my Market Meter is right and sometimes its wrong, but over the years it has helped me in three primary ways: (1) it has helped me read more and thus learn more about the myriad factors that influence the overall stock market and the individual companies that comprise it; (2) it has given me a slight return-on-investment edge compared with always using the same strike price [and we all need to seek and find our investing edges: (See Link)]; and (3) it has contributed to my commitment to maintaining a disciplined investing process -- and with a "disciplined investing process", we are following Warren Buffett's advice to "take the emotion out of investing and simply stick with good businesses" (read this prior article from my blog: (link).
Regards and Godspeed to All,
Jeff Partlow (Covered Calls Advisor)
partlow@cox.net
