Monday, December 30, 2013

DVY Dividend Stocks Weekly Chart Overbot Rising Wedge Negative Divergence Dividend Stock Bubble Price Extended

The growing dividend bubble has been highlighted for the last few weeks and months. The red rising wedge, overbot conditions and universal negative divergence says a top is in or will be with a subtle 1 to 3 week jog move. The indicators are out of oomph but price floats higher anyway as folks take their Christmas money and buy stocks. The bubble-no bubble talk continues in the markets with both sides always making good points. However, realize that this is all uncharted territory. No one is alive that traded the markets in the 1920's and 1930's to tell us what to expect. There are interesting things occurring. Equities are pumped higher by the central banker's easy money policies, especially the Fed and BOJ. Banzai! The BOJ April 2013 shock and awe is the main contributor of the stock market upside. In addition, the obscene buy backs have provided rocket fuel pumping companies 10% to 30% above where they should be priced, even higher. The buy backs are allowing companies to beat EPS even as the top line revenue is flat to lower each quarter. Buy backs keep the PE's lower which provides a false sense of security that markets are not in a bubble. Most traders think the Dow and SPX are around a 15 to 16 PE when if the buy backs did not occur, the PE's would be around 17-22. The RUT is already over 20 PE without considering the buy backs. The Case-Shiller PE is 24 typically where market pull backs occur.

Sadly, companies think so low of the economy that they are not willing to invest in equipment and cap ex, which would lead to jobs, but instead spend the money on buy backs that are accounting gimmickry to pump the stock bubbles higher. It gets better. Companies not only are using their available cash for the buy backs but also borrowing taking advantage of the Fed's easy money, to fund buy backs. For the icing on the cake, both Fed Chairman Bernanke and future Fed Chair Yellen say repeatedly that there are no asset bubbles in markets currently (the Fed has never been able to identify an asset bubble ahead of time in their entire 100-year history). Bubbles are subjective. DVY has ran from 22 to 72 in less than 5 years, 227%, tripling and more, do you consider this a bubble? SDY is another chart you can reference.

Another angle no one mentions is that the Chinese and Russian wealthy are shoving money under mattresses as fast as possible to avoid losing it all if their governments confiscate it. This behavior is fueling the bubbles in art, collectibles, vintage cars, real estate, vineyards, wine, and yes, stocks. These folks do not care about bubbles since they will be better off no matter what happens even if the bubbles pop and price is cut in half. Keeping half your money is better than losing all of it. As time moves along, the buybacks fade, the central bankers are exposed as being ineffective, and even the foreign wealthy money dries up as much of it has already pumped ongoing bubbles. What then will propel the stock prices higher and allow companies to meet EPS going forward?

The expectation is for price to roll over to the downside moving forward. Ma and Pa Kettle just took their entire life savings and placed it into dividend stocks. They were told not to worry and even if a sell off occurs, they will have the dividend and be fine over the long term. A 3% or so drop in price will quickly wipe out any divvy joy. One wonders how Ma and Pa will feel 10% lower? Price is extended above the moving averages so a mean reversion is desperately needed. A break of the lower trend line would be a very bearish development. All those folks flooding into dividend stocks thinking they will have some protection in soft markets will be disappointed. Hopefully, Ma and Pa moves into cash to sit things out for a month or three. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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