INVESTING: Investors beware: More stocks looking bearish

I bet you’d like to know the day this bull market is going to end. You might find it extremely helpful if your crystal ball told you when the S&P 500 was going to reach its top. If you had this information, you would probably hold on to all the stocks you own until the final day, thinking that you will get out of everything right at the top.

Unfortunately, market tops don’t work that way. Knowing when the S&P 500 was going to peak might not help you much with individual stocks.

In many market tops in the last 100 years, as few as 10 percent of all stocks peaked the same week as the S&P 500. Fifty percent or more often top out six to 12 months before the index itself.

Why is it important to talk about topping statistics today? Because I think we’re at a market stage where some issues and industries already have topped.

Despite new highs in many major market indexes, bear market chart patterns are slowly becoming more prevalent.

Bear markets do not begin with a bang, as most bull markets do. Bears get their start from an almost imperceptibly growing list of weak stocks. It’s like being eaten alive by ducks. At first it seems innocuous, then it becomes slightly annoying and then it’s downright dangerous.

The problem with stocks that go into downtrends this late in the bull market is they don’t have time to turn back around and join the upside. When a bull market is in the early or middle stages, stocks that fall for a few months can regroup and get back to new highs.

When there are only a few months left in the bull market, there isn’t time to repair the damage. Stocks that top out before the general averages typically continue their downward path for months, if not years. And the amount of money lost on these issues can sometimes be an almost insurmountable obstacle.

Here is a list of industries that might-I repeat, might-have topped. I realize that giving myself an out here will seem wishy-washy to some of you, but I am confident the S&P 500 itself can go higher in the next few months, and picking early bear market patterns can be tricky.

Restaurants, retail, recreation and consumer products all look as if they have rolled over.

Starbucks, PF Chang’s and Panera Bread are all struggling under their 200-day moving averages, and Wal-Mart is looking roughed up. I think Disney topped out in February of this year, and a lot of casino-related stocks don’t look enticing.

The common thread among these industries is they’re all dependent on consumer discretionary spending to do well. Perhaps rising gas prices are finally having an effect on the consumer. Whatever the reason, investors should exercise extreme caution with stocks in these industries.

I suspect we are no more than seven months from a top in major market indexes, and as the weeks pass, a growing list of stocks will be in bear markets. Holding on to these stocks may prove to be a big money-losing proposition.



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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