I discussed last week that the game will change with the September  FOMC meeting. I want to explore this in greater detail and discuss the factors that form the basis for these market changes. More specifically, I want to discuss the changes my market indicator is signaling. I have shared my market indicator with many of you over the years. The readings have recently reached a level indicative of a significant change in the market's perception of risk and bullish-bearish sentiment toward specific sectors and asset classes.

My indicator is comprised of 26 different market fundamentals, quantitative factors and financial variables weighted and correlated by where the economy is in the current business cycle and current valuations relative to ten distinct asset classes and their sub-sectors.

For example, in 1998 my indicator signaled a shift away from the big blue chip value conglomerates and cyclicals that had dominated the decade. It indicated a rotation toward the mid and small cap growth stocks within the market. What followed was an historic run in the NASDAQ as the dot.com bubble emerged and tech stocks provided outsized gains into the new millennium. As the dot.com and NASDAQ bubble unwound into mid 2000 the indicator favored bonds, particularly municipals, as common stocks were determined by the indicator to be grossly over-valued and the least desirable of all asset classes.

Similarly, as the stock market bottomed into early 2003 and the effects of the Fed's early decade rate cutting cycle filtered into the economy the indicator provided a bullish signal on value stocks. This rotation included small and mid cap value cyclicals, consumer durables, utilities, real estate, REIT's, transports, and the value dominated large financials.

Even more significant was the most bullish ever reading on the indicator in July of 2006 as the market had sold off from an impressive spring rally to the lows that began the current bull market run, or a bullish move within an ongoing secular bear market depending upon your perspective. I know many of you benefited from that indicator reading along with me.

While my indicator did not portend the regional devaluations in real estate resulting from the credit market financial crisis and resulting financial sector turmoil it would not be expected to, as these were industry created crisis's not induced by the financial markets or created by the business cycle or macro economic events. However, I am confident that the slowdown in the economy, the strength in export growth, weakness in the dollar, falling consumer sentiment and retail sales are causing the strong stock sector rotation signal I'm now receiving from my indicators.

Such factors as the recent payroll report showing the economy contracted by 4000 jobs and the Mortgage Bankers Association report that the number of mortgage foreclosures has reached the highest level in 55 years obviously greatly impact my economically sensitive indicator. Moreover, of the past 10 recessions, eight were preceded by an over investment in housing followed by a severe decrease in home values.

However, the most significant aspect of the indicator's new reading is the rotation out of value and into growth stocks. Interestingly, several sectors once classified as value are now showing up on my screens for growth stocks that now fit the indicator's defined selection criteria. The utilities are a good example of a former value sector now being revealed as a growth sector by my indicator.

Another major change in the indicator is the focus on large-cap high-dividend yielding defensive names with high cash levels, strong cash flows and continued pricing power. The quality of the corporate dividend ranked highly among the variables. Also highly ranked was the focus on large cap equities exporting to developed countries and a lack of financial exposure or any dependency on the credit markets for continued growth and expansion. I believe this reinforces the very high premium placed by the indicator on corporate cash levels.

This reading is of course subject to sector and stock specific interpretations. One investor's growth stock is another's value play. Hence, the constant debate over growth versus value. However, one of my main takeaways from the indicator is a greater than expected slowdown in both domestic business and consumer spending. I anticipate a substantial decrease in all but governmental spending from the peak levels we have experienced during the most unprecedented recent economic expansion.

This conclusion has led me to the substantial portfolio rotation and reallocation I have undertaken in advance of the FOMC meeting. I have over weighted dividend plays in less economically sensitive and more defensive sectors such as utilities, select tech, agricultural related areas, oil service, mining and materials, pipelines, telecom, healthcare cost containment, infrastructure, select big pharma names and biotech, aerospace and defense contractors and large cap multinational weak dollar sectors predominantly exposed to developed countries. I will continue to add to these positions in my usual staged-buys and sells approach.

Finally, my indicator's reading on bonds was the signal I was awaiting to greatly increase my exposure to Treasury Inflation Protected Securities (TIPS) and I have taken the recent bond market action as an opportunity to do so.

My indicator is not infallible and is certainly capable of misinterpretation. But it has proven over the years to be a good indicator of macro changes in the market and market sector sentiment resulting in sector rotations. While I in no way intend my indicator or my interpretation of it to be construed as some type of call for a market calamity or even as a bearish call on the stock market, I do believe my indicator is signaling a stock market rotation from value stocks into larger cap equities with more growth and pricing potential. I simply believe that my indicator is signaling large cap growth stocks with above market average dividend yields and international exposure will produce superior total returns going forward for the foreseeable future.