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Dump Apple From the Cart in the Summer Slowdown

Now is historically a down time in the markets


It’s that time again.  Mid-July, when the stock market often runs out of gas … at least temporarily.  Since 1950, according to the folks at, the S&P 500 has registered a minus 2.04% annualized return from July 17 to Sept. 28.

That approximately 10-week period lags more than 10 percentage points behind the S&P’s average annual return — a huge, and statistically significant, divergence.

Of course, every year is unique.  But there’s reason to suspect that the July Syndrome may visit us again in 2013.

Bond yields have spiked since early May, creating serious risks for the housing recovery.  (Mortgage applications have fallen one-third from a year ago.)

What’s more, financial tensions in Europe appear to be rising again.  Spain’s prime minister is enmeshed in a scandal that could force him to step down, and Portugal’s coalition government is teetering as politicians try to back away from the country’s EU-mandated austerity program.

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Technically, too, the market is showing a weakness we haven’t seen in a long time.  Take a gander at this chart, which plots the NYSE Advance/Decline Line — the cumulative total of daily advancing stocks on the Big Board minus decliners.

As you can see, the A/D line in recent days has failed to touch a new high for the year, even though the Dow and the S&P 500 index have surpassed their May 21 closing peaks.  This is the first time since the bull market began in March 2009 that a new 52-week high on the headline indices has gone unconfirmed by the A/D line.

A/D divergences don’t always signal a catastrophic plunge ahead.  Coming this late in the cycle, however, a two-month A/D divergence certainly raises a yellow flag.

For now, I advise you to slow your buying to a crawl and build up some excess cash.  Don’t be afraid to sell a few stocks that look richly valued, or whose fundamental outlook has deteriorated.

In our model portfolio, I’ve changed my mind about Apple (AAPL).  Over the past 90 days, analyst estimates for AAPL’s FY14 earnings have dropped almost 12%.  When I recommended the stock during late winter, I was hoping the consensus would bottom out and start to turn up by now.

No such luck.  If you’ve been following my advice, your AAPL cost should be $425 or less.  Take your modest profit and move to the sidelines.

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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