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Will Apple’s Weakness Hobble the Bull?

So far it hasn't. But if another big name breaks down, watch out


The stock market looks gorgeous. Or does it? We’re at a strange juncture. On the face of it, the brisk rally since the turn of the year is bullish for 2013 as a whole. Since 1950, whenever the Dow has scored a gain in January, the winning odds for the next 11 months climb to an impressive 83%.

The month is only half over, of course. However, the market’s reluctance, over the past three sessions, to give back its early-January gains bodes well for the rest of the month. Until the weight of the evidence shifts, I suggest maintaining at least a mildly constructive view.

At the same time, it’s clear some problems are developing in the background. One is the alarming weakness — collapse may not be too strong a word — in the iconic growth stock of this cycle, Apple (NASDAQ:AAPL). Not only has AAPL plummeted 31% from its September peak, but the stock is now falling sharply even on days, like yesterday, when the overall market behaves fairly well.

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The bull can survive, for a while anyway, the loss of a major leader like AAPL. However, if another glamour name with a wide following, such as Amazon (NASDAQ:AMZN), were to break down, investors could quickly turn defensive. I’m watching AMZN carefully. No sign of trouble yet.

A second issue that bears watching is the dramatic resurgence of insider selling in the New Year. According to the folks at Vickers, who keep tabs on these things, officers and directors at America’s publicly traded companies have executed 4.36 sell transactions for every buy over the past eight weeks. While that’s still a bit below the 4.79 ratio at which this gauge peaked last fall, it betokens an unseemly urgency by the rats to jump ship.

Bottom line: It’s OK to buy stocks in here, but selectively and sparingly. Stick with outfits that feature “automatic stabilizers” (such as high dividends) to cushion your ride if the market sails into rough seas.

Top billing at the moment goes to electric utility Southern Co. (NYSE:SO), with its fat 4.5% yield. I look for SO to raise its payout again in the spring, by 3% to 4%, making the dividend even more attractive.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk “value” approach has won seven “Best Financial Advisory” awards from the Newsletter and Electronic Publishers Foundation.

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