Friday, March 5, 2010

What do Dividends, M&A, and Health Control Have in Common?

Anon wrote: "Dividends picking up, M&A for cash picking up, and companies buying their stock proves this market is heading higher FDR"

Dividends heading higher is always a sign the market is going lower. At market peaks, dividends are virtually non-existent at around 2.5%, because people are happy with cap gains--companies don't need to pay cash flow to attract stock trader-speculators.

At major market bottoms (talking Great Depression lows), dividends hover as high as 30% to attract investors (I'm interchanging the term "trader-speculator" and "investor" intentionally). Today we're in the 3-4% range.

Remember the M&A flurry at the last major W2? It was at Dow 11.8K and only a few bears were left waiting, and waiting, and waiting on the market to turn lower. The Bear bandwagon emptied out, just like today. Then the stimulus bill passed and the very minute of the vote was the W2 peak. The market was at 6.5K within a few months.

Interesting that the health care bill is set to pass as early as next week, with little hidden gems like an increase in the capital gains tax from 15% to 22.5%, and a similar income tax bracket increase. Just saying... look out man, it's coming.

Any of these major news events could trigger it. It doesn't matter what the news is, EWs tells us that a major change is imminent and it will be interpreted as a major selling event. The same event would be a major buying event if the wave were on the other foot.

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