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The first month of Q3 earnings came in with an Up/Down reading of 1.73, just below the historical average of 1.81 but ahead of the first months’ readings for Q2 (1.59) and Q1 (1.38).

We like Attractive groups that make us cringe at the thought of potentially purchasing them. We take a peek at three groups - Airlines, Education and Managed Care - where we plugged our nose and bought.

The Major Trend Index remains positive, but we reduced our target exposure from 62% to 60% using a short ETF as we believe this position will be temporary in nature.

We are encouraged by the narrower spreads in October as the feared divergence between credits and equity markets did not continue.

We seem to be in a “Goldilocks” period, where economic numbers are not bad enough to re-ignite recession fears but are just weak enough to push the taper farther off.

Considering the market’s strength, we are pleased with the performance of our short portfolios.

Overall demand slack, stubbornly low velocity of money, an overall stronger dollar, painfully low labor cost inflation and weakness in commodity prices are strong disinflationary forces.

The Select Industries sold Railroads and bought Tech Distributors. For the second month in a row Global Industries saw little turnover and no equity group deactivations.

The Russell 2000 is about five points ahead of Large Caps YTD, and is approaching its April 2011 long-term relative peak. We view this outperformance as their leadership’s last gasp and not a new cycle.

We don’t think the numbers between now and the Fed’s December meeting will be strong enough to convince it to start tapering this year. No taper until 2014, in our opinion.

That leads us to think more about price momentum as an alpha-generating factor.

There’s no reason to run for cover if the Early Cyclicals have topped out.

Some of our alternative valuation measures find the market even pricier than P/E ratios do.

The severity of the market’s current overvaluation depends on one’s historical vantage point.

From a pure price action perspective, it’s difficult to find cracks in the bull market’s edifice.

In the 1970s, a cassette tape manufacturer asked listeners, “Is it live, or is it Memorex?” Forty years later, watchers of the stock market “tape” find themselves asking, “Is it real, or is it QE?”

All fund subsets followed here saw net cash inflows this week aside from bond mutual fund categories and retail money market funds.

The Major Trend Index rose 0.04 to 1.20 in the week ended October 25. We are increasingly wary of U.S. market valuations, but our disciplines tell us to wait until the MTI deteriorates to negative before taking a major defensive stance. 

The Major Trend Index rose 0.01 to 1.16 in the week ended October 18th, with gains in the technical category offseting losses in the four other indicator groupings. In line with this work, we continue to target above-average net equity exposure of 60% in both the Core and Global Funds.

After three weeks of outflows, domestic equity mutual fund net cash flows were positive again this week. Net cash outflows from bond mutual funds persist. Foreign-focused mutual funds continue to gather cash on a net basis. Domestic equity ETF flows remained positive this week moving closer to all-time record levels