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Wednesday, January 20, 2016

Louis Navellier - S&P 500 "Triple Bottom" Last Friday

Excerpts from a Louis Navellier email titled "The S&P 500 Reached a "Triple Bottom" Last Friday"

-------- Forwarded Message --------
Subject: The S&P 500 Reached a "Triple Bottom" Last Friday
Date: Wed, 20 Jan 2016 08:05:08 -0500 (EST)
From: Navellier and Associates <marketmail@navellier.com>

All content in this Introduction to Marketmail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

The S&P 500 Reached a "Triple Bottom" Last Friday

Last Friday, the S&P 500 essentially tested its August 24th low on high trading volume; so we finally got the panic "capitulation" day that typically marks decisive stock market bottoms. I for one can tell you that I was putting new money into the stock market by funding my 2016 SEP and adding money to a family partnership Friday, because the stock market appears to be grossly oversold, as signaled by a "triple bottom," which was created by market lows set in mid-October 2014, August 24, 2015, and January 15, 2016.

The way High Frequency Trading (HFT) systems work, what is down today is likely to be up tomorrow; so the herky-jerky market action we've been seeing on a daily basis will likely persist. The fact that Friday was a capitulation day on high trading volume, aided by an option expiration day, gives me hope that we'll see a big bounce early in this holiday-shortened week; so be prepared for more daily gyrations, thanks to HFT. In addition, the S&P 500 dividend yield of 2.3% is now well above the 10-year Treasury bond (below 2%, intraday).

However, before we get too excited, theaverage energy stock now trades at 28.7 times trailing earnings, and their forecasted earnings are truly horrific. A while ago, my company published a white paper, warning investors to stay away from these stocks. The ETF industry is basically causing this excess valuation for energy companies with negative sales and earnings. Specifically, I've seen a wave of ETF "pop up" buttons lately, advertising ETFs with yields over 4%. The only problem is that to get that 4% dividend yield, the ETF industry has to buy a lot of multinational and commodity-related stocks that are characterized by negative sales and earnings. As a result, the tail (i.e., dividend yield) is wagging the dog.

Not surprisingly, energy stocks now dominate the "F"-rated stocks in our Navellier DividendGrader and PortfolioGrader services. In my opinion, it is futile to chase high-dividend stocks via ETFs since you are setting yourself up for persistent principal erosion, regardless of the dividend yield. In other words, while the S&P 500's generous dividend yield is putting a good foundation under the overall stock market, some of the highest dividend offerings are becoming dangerous, due to the ongoing woes in the energy sector.


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