The Bull Is Dying a Death by a Thousand Cuts

by Richard Band | October 27, 2012 9:00 am

It takes a lot of gashes to bring down a mighty bull. The headline U.S. stock indexes have continued to make new recovery highs in 2012, with notable peaks in April and September.  If you inspect more closely, though, you’ll find more and more wounds appearing in the bull’s hide.  After Thursday evening’s earnings reports[1], market leaders Amazon (NASDAQ:AMZN[2]) and Apple (NASDAQ:AAPL[3]) may be ready to add to the gore.

Truth be told, both AMZN and AAPL have been weakening for only a little over a month now.  Hundreds of other stocks entered their private bear markets long ago—in some cases, as far back as April 2010 (the nation’s big banks, for example).  The bull has slowly been dying a death of a thousand cuts.

There’s actually a morsel of good news in this narrative.  Because so many stocks have already dropped a long way from their post-2009 highs, it may not be necessary for the market as a whole to do a swan dive in 2013.

In fact, if the upcoming elections prompt the White House and Congress to tackle the nation’s overspending problem, any downturn for stocks in 2013 could be short and sweet, setting the stage for a much longer-lasting uptrend.

But we’ll have to take it one step at a time.  At this point, with so many issues unresolved, it makes sense to be extra finicky about the prices you pay for new stock purchases.

Focus on super-strong franchises like Coca-Cola (NYSE:KO[4]), International Business Machines (NYSE:IBM[5]) and McDonald’s (NYSE:MCD[6]), all of which, I project, will generate a total return in double digits over the next 12 months. We’re monitoring all three names in the main Profitable Investing model portfolio.

Gold and gold-mining shares mounted a brisk rally today, possibly marking the end of a “correction” that began (for the mining shares, anyway) over a month ago.  However, I’m concerned that hedge funds and other speculators remain heavily positioned on the “long” (buy) side of gold futures contracts—a situation that, historically, has made further gains for the bullion price quite difficult.

For now, hold the two gold stocks I’ve recommended, Barrick Gold (NYSE:ABX[7]) and Newmont Mining (NYSE:NEM[8]).

Ditto for our two gold-mining ETFs, Market Vectors Gold Miners (NYSE:GDX[9]) and Market Vectors Junior Gold Miners (NYSE:GDXJ[10]).

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