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,
Jeff
