| ETF Profit Strategy |
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| Dow 10,000 – Springboard or Final Kiss Good-bye? |
For the first time in over a year, the Dow has passed 10,000, a level many consider to be psychologically important.
Some – like the 80% of economists that think that the recession is over - believe this is an important sign of better things to come while others think it’s more like a “group-hug,” and carries no special significance.
Before you put trust into any projections, consider this: The very same Wall Street analysts and economists who NEVER foresaw the most recent bear market and recession are now proclaiming it's already over! Their champagne bottles are corked and ready for the next bubble.
The ETF Profit Strategy Newsletter was one of the only services that predicted this monster rally via the March 2nd Trend Change Alert.
Where were the economists in October 2007 when the market topped? Can you remember any credible source predicting a major meltdown? We can't.
Why would you want to put any trust in the same old geniuses who’ve been consistently wrong about the market over the past few years and today?
Before all the Harvard-educated, high-tech analysts and economists that didn’t see this massive tidal wave building arrived on Wall Street, there were simple, old-fashion common-sense indicators that graced Wall Street with their presence.
Those indicators weren’t fancy, but they were reliable. Perhaps it’s the simplicity behind those easy to understand valuation metrics that make them unattractive to hyper-educated and self-absorbed Wall Street rookies.
We’ve all heard of P/E ratios and dividend yields. We all know that high dividend yields are signs of healthy companies while high P/E ratios are a red flag.
However, Wall Street is masquerading the current dividend and P/E ratio environment with a blanket of silence. Dividend yields are close to an all-time low while P/E ratios have sky-rocketed to an all-time high. This is disturbing from a valuation point of view – stocks are simply overvalued.
Even more disturbing, however is extent of the overvaluation. The current P/E ratio based in actual reported earnings is 138. Historically, P/E ratios above 20 raise valuation concerns.
History teaches us that the stock market has never bottomed for good unless dividend yields and P/E ratios reach rock-bottom levels that serve as springboard for a new, healthy bull market. This reset did not happen in 2002 and it did not happen earlier in 2009. A significant drop in stock prices is needed to revert back to fair valuations.
This is confirmed by the Dow Jones measured in the only true currency – gold. The gold-Dow peaked in 1999 and has been declining ever since. Driven by investor perception, the dollar-Dow has managed to outperform the gold-Dow for the past 10 years. However, just as reality will eventually catch up with perception, the dollar-Dow will eventually catch up with the fall in the gold-Dow.
The October issue of the ETF Profit Strategy Newsletter is packed with graphs and charts relating to the “crystal-ball-like” features of P/E ratios, dividend yields, the Dow measured in gold and mutual fund cash reserves. A target range for the ultimate market bottom is given based on the unanimous vote of the four indicators we’ve dubbed the “Four Horsemen.”
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