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 3.14 (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 expiration month".
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 upper-right sidebar.
Regards and Godspeed,
Jeff
