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Your portfilio is still over Valued!!!

Your Portfolio is STILL Historically 

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Overvalued

By James B. Driscoll, July 18, 2011

Over the past year, the Dow has risen from near 10,000 to around 12,500 today. This recent history makes it easy to think that the 2007-09 declines (when the Dow dropped below 6600) are ancient history.

But don’t fall into that kind of complacent thinking: Your portfolio is still historically overvalued. How can you tell?

Take a look at this year-end stock market valuation chart that Bob Prechter created, as well as his commentary. Notice particularly where year-end 2010 and April 2011 stock market values and dividend yields show up (near the arrow). Then compare their position with the normal range outlined by the rectangular box. Once you see this chart, it will be easier for you to see where values are likely to head in the future

“In May 2011, the dividend yield on the Dow was back to 2.3%. Only 2000 and 2007, the two biggest market tops since 1929, saw lower yields. Bulls argue that a 2.3% yield from blue chip stocks is bullish because it is much bigger than the near-zero yield from Treasury bills, but this argument does not hold water. In June 1984, 12-month T-bills yielded 12%, way more than stocks, but the difference was not bearish; the stock market took off on the upside right from there.

“Figure 6 is a new chart. It is designed to show the two most extreme indicators — book values and dividend yields — on one graph. As the bear market progresses, the dots should move toward the lower left corner of the chart.” (Excerpted from the June 2011 Elliott Wave Theorist)

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Categories: Economic Update
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