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All year, you’ve been reading my description of what the end of a bull market looks like. Major indexes move higher but fewer and fewer stocks participate in the rally.
A case in point: On Sept. 9, the S&P 500 came within two points of its early August high, but 60 percent fewer stocks hit new highs in September than in August. Hmm.
Apple Computer is one of those stocks I keep saying can keep leading right up to the final major-index highs. Apple hit an all-time high Sept. 9. Interesting.
I’ve also said all year that the number of stocks participating on the downside will slowly increase. The low list has expanded from Wal-Mart and some pharmaceuticals to include everything related to consumer spending. Entertainment, retail, restaurants and home builders all took it on the chin in September. Now the picture is clearing up.
In the final months of a bull market, an increasing number of stocks already have begun their own bear markets. With this in mind, I present the profit playbook for whatever time is left in this bull market (seven months at the most).
Besides energy and utilities, there doesn’t seem to be a theme for what is working on the upside right now. Certain semiconductors, like Motorola and Texas Instruments, look good, but Intel is suffering. Apple looks fantastic, but Dell is the definition of weak. (I own Apple, Motorola and Texas Instruments.) Precious metals, such as Freeport and Barrick Gold, also look good.
Computer software firms Autodesk and Intergraph have been acting strong lately. (I own Autodesk.) I don’t own Sybase, but I would be interested in buying if it pulls back to $21.50 or so.
Caterpillar is a stock that has baffled a lot of people, but it keeps going higher. I expect it to be at the party until the lights go out. I also like Teva Pharmaceuticals (I own it) and Qualcomm. These stocks keep powering ahead.
Any stock in energy or utilities seems to have a good chance of going higher the next few months. But because those sectors have been strong all year, don’t be surprised by a violent pullback. Prices could fall a fair amount without disturbing these stocks’ powerful up trends.
Here are some individual stocks to be wary of. Wal-Mart has been falling for 18 months, and it may not recover for years, if at all. (Yes, that’s what I said. Wal-Mart may never see $61 again).
Be careful with Disney, as it has had the trajectory of a falling brick all year. Also, Starbucks, Applebee’s and PF Chang’s look terrible, along with Pfizer and Eli Lilly. After recovering somewhat in July, IBM is starting to roll over again. And while I am not ready to call the demise of the home builders, I wouldn’t own them now with a gun to my head.
Again, be careful. I want to be around when we come out of the approaching bear market in two or three years.
Hauke is a local money manager. His column appears weekly. Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at keenan@samexcapital.com.
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