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Time to Prepare for November Swoon?

November 9, 2012 11:21 AM EST Send to a Friend
Since October the S&P 500 has lost over 4.5 percent. Shares of Apple are lower by 18.5 percent over the same period and blue-chips stocks such as Exxon Mobil (NYSE: XOM), General Electric (NYSE: GE), and AT&T (NYSE: T) haven't performed. It has gotten so bad that long-time go-nowhere stock, Microsoft (Nasdaq: MSFT), is outperforming – an ominous sign, to be sure.

Meanwhile news reports cite Dow weakness and a break of the 200-day moving average. The S&P 500 is on track to break its 200 average in short order, though to a large extent moving averages went out of fashion in the 70s. Nonetheless, the fact that many widely-watched technical indicators are breaking like toothpicks is sure to turn a few heads.

Fund managers, if they haven't done so already, are considering ways to lock in year-to-date gains on top performers like the aforementioned Apple and other high fliers.

As a reminder, this year's break out sector was homebuilders, but with valuations extended, and with top performers such as PulteGroup (NYSE: PHM) rolling over, many are wondering which sector, if any, can take its place. Tech stocks are a joke. Coal and other energy sector stocks are in shambles, and considering the regulatory environment, investing in large banks may prove to be a lesson in masochism.

Overall there is a growing sense on Wall Street that the Bear woke up from hibernation and is stalking the markets, ready to tear into investors throats. Too graphic? Perhaps, but the point is summer's rally has grown cold. Maybe investors fear the fiscal cliff or maybe they fear Europe will flare up again, or maybe China's slump, or weak U.S. jobs growth, or... who knows. The point is markets do not look at all healthy.

Hopefully sentiment will pick up into the holiday season and year-end, but for now it looks like investors may be facing a November Swoon. Hopefully the sell off will find support soon. 1350 looks promising. Beyond that, 1250 may come quickly into view. Overall investors may be better off targeting individual names with strong quarterly performance such as Qualcomm (Nasdaq: QCOM) rather than the indexes or ETFs like SPDR S&P 500 ETF (NYSE: SPY). The bottom line is investors may need to think outside the box and be nimble heading into Q4. That or bring plenty of smelling salts if markets turns ugly.




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