If you are a no nonsense kind of a person, you ask direct questions and expect direct answers in return.

So, is the bear market over? No. If that is not the answer you were looking for or would like to have more details, you are welcome to read on.

As investors we always want answers for what drives the market. Wall Street and the financial media gladly fill that need. One side demands information; the other side provides information. That seems like a perfect fit.

If you are a no nonsense kind of person, it might be hard to reconcile what the media is feeding you. Friday is a perfect example. The bank stress test results of European banks were released.

In early trading on last Friday, the euro tumbled over 1.5%, a huge move for currencies. Therefore, CNBC reported that “Euro tumbles amid disappointment in EU stress test.”

European Stress Test or Gentle Massage?

Later on, the euro recovered and you could read the following headline on Bloomberg: “Euro gains on bank tests.” What a magic currency those Europeans possess, it has the ability to confuse our domestic media outlets.

Regardless of what the stress test did or did not do to the euro, it seemed to have lifted consumer’s confidence in the European banking system. Many also believe it propelled the U.S. market (more about that in a moment).

At first glance, the results of the stress test, which involved 91 of the biggest euro banks, looked positive. Only 7 out of 91 failed. Of course, there’s more to the story.

Bloomberg reports that the European Union stress tests are set to ignore the majority of banks’ holdings of sovereign debt after regulators decided against testing securities held in their banking books.

“The haircuts are applied to the trading book portfolios only, as no default assumption was considered,” the European Central Bank said. Banks hold about 90% of their sovereign debt (such as Greek government bonds) in their banking book and 10% in their trading book. The stress test, however, does not look at the losses accrued by the 90% held in the banking book.

It looks like the whole maneuver is no more than a gentle massage, labeled as a stress test to appease the masses. The so-called stress test worked in the U.S. about 14 months ago, why shouldn’t it work in Europe?

Same Strategy, Different Outcome

Timing is probably the key reason why it won’t work in Europe. When the U.S. stress test results were released on May 8, 2009, the S&P (SNP: ^GSPC), Dow Jones (DJI: ^DJI), and Nasdaq (Nasdaq: ^IXIC) were already trading 40% above their March lows. Yes, the S&P had rallied from 666 to 930 in two months.

Credit for this rally was given to various government efforts when in reality the market was about to rally anyway. On March 2, 2009, before the Fed announced to buy up to $1.2 trillion worth of government bonds (announcement made on May 18) and before Geithner announced a plan to create the Public Private Investment Program (PPIP, announced on March 23), the ETF Profit Strategy Newsletter sent out a Trend Change Alert .

The Trend Change Alert predicted the biggest rally since the October 2007 all-time highs and recommended to buy long and leveraged long ETFs such as the Financial Select Sector SPDRs (NYSEArca: XLF), Technology Select Sector SPDRs (NYSEArca: XLK), Ultra Financial ProShares (NYSEArca: UYG), Ultra S&P 500 ProShares (NYSEArca: SSO) and many others.

Unlike the U.S. stress test, which was adopted at the onset of a major rally – which covered up a lot of dirty laundry – the European stress test was adopted at a time when the bear market has started to reassert itself. But what about the recent rally?

Is the Bull Market Back?

Earlier this year in April, it sure looked like the bull market was back. The Obama administration and Ben Bernanke were eager to take credit for the miraculous recovery and Wall Street was elated. The Wall Street Journal proclaimed: “Dow 11,000 is only the beginning!”

The ETF Profit Strategy Newsletter viewed this bullishness with suspicion and noted the following on April 16: “The message conveyed by the composite bullishness is unmistakably bearish. The pieces are in place for a major decline.”

From April 26 to July 1, the S&P (NYSEArca: IVV) dropped more than 17%. Small cap (NYSEArca: IWM) and mid cap stocks (NYSEArca: MDY) dropped more than 21%. But, then stocks rallied. In fact the S&P has rallied about 100 points since the July 1 low.

Even though the size of this rally is remarkable, some sort of rally was likely to develop according to the ETF Profit Strategy Newsletter, which noted one day after the S&P dropped to 1,011: “Considering that the S&P is butting against the 100-week SMA, lower accelerations band, 38.2% Fibonacci retracement levels, round number resistance at 1,000, and weekly s1 at 994, there is a good chance we will see some sort of a bounce develop from the 990 - 1,015 area.”

Financially Engineered Profits

Positive earnings results have been broadcasted all over.  The fact that blockbuster January and April earnings seasons resulted in a 9% and 17% decline, seems to go largely unnoticed (see chart below).

Lost in the shuffle were also admissions by Bank of America and Dell Computers that earnings numbers had been tampered with.

Bank of America used a strategy similar to what Lehman Brothers tried. This accounting trick is designed to hide bad assets and increase liquidity. Bank of America used that “trick” six times from 2007 to 2009. The amount in question exceeds $10 billion.

Dell fudged all their earnings from 2001 through 2006. Without deceiving investors, Dell would have missed analysts’ estimates in every quarter during that time. Yes, earnings look good, but earnings can be anything an accountant says they are.

You Can’t Fudge Dividends

Savvy investors focus on numbers that don’t lie or can’t be manipulated. One of those numbers is dividend yields. Companies are serious about the dividends they pay. If a company decides to raise dividends, it needs to be certain that it can maintain its dividend payments.

Reducing dividends on the other hand shows that profit margins are slim and cash is tight. Lowering dividend payments is a sign of weakness and sends a strong message.

The current dividend yield for the Dow Jones is 2.65% and 2.05% for the S&P. This is close to the lowest yield in history and an obvious tell tale sign that the recovery has been very meager.

Even previously dividend-rich ETFs - such as the iShares Dow Jones Select Dividend ETF (NYSEArca: DVY), SPDR S&P Dividend ETF (NYSEArca: SDY), Vanguard High Dividend ETF (NYSEArca: VYM), Vanguard Dividend Appreciation ETF (NYSEArca: VIG) or iShares Russell 1000 Value (NYSEArca: IWD) – have yields below 3 or 4%. An analysis of historic dividend yields shows that there is a direct correlation between yields and market tops or bottoms. At market bottoms, yields are sky high and vice versa at market tops.

Dividend yields are a direct reflection of a stock’s value, and valuations don’t lie. Based on their yield, stocks are expensive. The only way to go back to a historic equilibrium is for stock prices to drop (alternatively, dividends could rise, but that’s not happening).

The ETF Profit Strategy Newsletter includes a detailed analysis of various valuation metrics plotted against the markets’ performance. The correlation is unmistakable, as are the implications for the stock market in general.

If you are a no nonsense investor, you’ll rely on historic indicators with a reliable track record, rather than on Wall Street’s self serving hype.