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Weekly Analysis

Dividend Support, Still Investors' Most Reliable Guide?
FNArena News - February 12 2014

By Rudi Filapek-Vandyck, Editor FNArena

Not everyone is equally convinced 2014 shall be a good year for equity investors. Harry Dent, US author and forecaster of markets, has returned to Australia. One of his current predictions is that 2014 will be the year of reckoning for bubble inflated equity prices.

Now, it has to be pointed out Dent has been consistently negative on US markets even as indices soared to new highs between March 2009 and last year. As such, Dent has been labeled a contrarian indicator by some who doubt the man has any credibility left. Here's one such analysis on Dent's predictions: http://www.avaresearch.com/avanew/articles/750/A-Look-At-Harry-Dents-Track-Record.html

There must be a natural attraction for doom and gloom forecasters such as Dent, even if they consistently get it wrong over a long period of publishing predictions. Otherwise, I cannot explain how his well-oiled marketing apparatus still manages to get enough people through the door for Dent's public appearances.

Global stock markets have quickly recovered from earlier weakness these past few days and already the optimists are declaring the gates are now open for the next rally, and the next all-time high milestone for US markets.

However, weakness in the opening weeks of 2014 has certainly shown that markets, and sentiment in general, have become more vulnerable, and even quite fragile at times, than they have been since mid-2012. Needless to say, there is always a large army of mini-Harry Dents around with lines and signals on price charts to support their predictions and this time is certainly not different.

US-based William Kurtz, for example, put out a gloomy note last week, which can be read here: http://archive.aweber.com/candlewaves/DWwKX/t/Le_Deluge.htm

The team of technical chartists at Citi has equally grown worried about the fact that US equities look stretched to the point comparisons with the years 2000 and 2007 do not seem totally out of the question. Citi's technical analysis of US markets' set-up can be viewed here: http://www.zerohedge.com/news/2014-02-07/why-citi-worried-about-1700-level-sp

In Australia there's equally a lot of talk among chartists and technical analysts about potential further losses that might pull the ASX200 below 5000, or even as low as 4600 before the next solid rally can announce itself. The fact that markets have now bounced for a few sessions would not have changed any of these predictions.

In my personal view, investors had simply become too convinced that the rally throughout 2013 was simply going to extend itself in 2014. Call it "bullish complacency", like Glushkin Sheff's David Rosenberg if you wish, but several measurements and indicators for market sentiment have essentially laid bare the same underlying observation: everyone thought markets were only going to go up, and thus they didn't.

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