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Dividend Yields: A Major Sign of the Long-Term Trend in Stocks
Today's chart illustrates how dividend yields have earmarked significant tops and bottoms over the last century

By Nico Isaac
Tue, 14 Jun 2011 15:00:00 ET
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The only time that fundamental analysis of financial markets doesn't make sense is those parts of the week that end in "day." (Idea borrowed from a famous Warren Buffett quotation on when to buy junk bonds, i.e. Never)

Take, for instance, the slew of news items below discussing the recent price action in the world's leading stock index, the Dow Jones Industrial Average.
 
  • On June 10, the Dow finishes its sixth straight week of decline. This is the market's longest losing streak since 2002. Says one media source: "With few economic reports on the horizon this week, there's little that could give the equities markets a jump. I don't see any catalyst that could help reverse this trend in the coming days." (The Epoch Times)
 
  • "In the coming days," however, the Dow reversed its downward course to enjoy a powerful triple-digit climb on June 14. "US Stocks Rose Sharply," began a Wall Street Journal. "The market was aided by a reading on US retail sales that wasn't as bad as economists' expected."
 Then the tables turn once again on the whole good-crude-oil-cop/bad-crude-oil-cop debate:
 
  • On June 10: "Stocks Adrift As Traders Digest Renewed Bullish Calls On Oil." (Forbes)
 
  • VERSUS this June 14 post: "Wall Street Set To Open Up On Commodities' Gains. US stock indexes pointed to a modestly higher open as stronger oil prices led a rebound from the previous session." (Reuters)
When it comes to participating in financial markets, consistency should not be a luxury. It should be a necessity. For Elliott Wave International's analysts, the goal is to find those technical indicators that continually stand the test of time in their ability to signal major turning points in the key indexes.
 
One of those indicators is the dividend yield. Since... well, forever, investors accept low dividends at market tops in the belief that stocks have much higher up to go. The opposite holds true near bottoms, as investors demand high dividends to offset the perceived risk in stocks.
 
In his 2002 NY Times business bestseller Conquer the Crash, Prechter reinforced this discovery via the following close-up of the DJIA versus dividend yields from 1915-2000:
 
NOW -- the June 2011 Elliott Wave Financial Forecast revisits this powerful indicator with a mind-opening close-up of the Dow versus dividend yields from 1930 to TODAY. One look at this chart and you will see whether a lasting bottom has been reached.
 
 
PLUS, when you subscribe, you'll get instant access to Chief Market Analyst Steve Hochberg's NEW 42-minute subscriber video, "Three Historic Peaks in the Financial Markets -- And What It Means To You." You'll get an intensive, eye-opening look at the development of the greatest financial top of all time -- one that encompasses stocks, crude oil, commodities, gold, property prices, junk bonds and more.

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