S2 Option Trader

[SyndicateTwo]

Here's a market cycle update:

The evidence continues to trickle in that this market is forming a top of at least short to intermediate term importance and perhaps a far more important top than that. A few more things happened today to back up that opinion. The Dow Jones Industrial Average closed at its highest level in five months today at the same time as the McClellan Oscillator moved into negative territory. This is a very unusual occurrence that has occurred at market tops in the past. It is also important to point out that both the New York Stock Exchange and the S&P advance/decline lines were convincingly negative today with the ratio of declines over advances in the S&P 500 data at 1.92. It is still the case, as we pointed out over the past week or so, that the S&P 500 has failed to break above its high for the year established on January 6th.

There is another important point we should make in terms of market valuation. Most of us have heard analysts and brokers talk about the compelling values that exist because of the historic market decline. We would like to point out that the best value indicator as far as we are concerned is the dividend yield on the S&P 500 Index. It used to be stocks were on the bargain counter when the dividend yields reached 6 percent or higher and the market was at or near a top when the dividend yields reached 3 percent or lower. Those were the good old days! Over the past 10 years or longer investors have convinced themselves that dividend yields are no longer important. We beg to differ and we contend that this market will not be in great buying territory until the dividend yield reaches at least 5% and probably higher than that. We will end this discussion by telling you that the yield on the S&P 500 at the end of last week was 2.4%.