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[dTraderB]

Not yet. Another rally before the Summer dump begins.

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May 11, 2012, 12:02 a.m. EDT
How to play nice with the bears of summer
Take advantage of the market’s weakest season

By Wallace Witkowski, MarketWatch

SAN FRANCISCO (MarketWatch) — With major U.S. stock markets off their highs for the year and renewed worries building about Europe, investors are wondering whether they should put their money into hibernation if the bears maul the market once again this summer.

Many observers have pointed out that this year’s rally has striking parallels to the market’s 2011 advance, which was cruelly struck down over the summer months.
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Last year, the Dow Jones Industrial Average DJIA -0.27% had gained almost 11% by the end of April, but by mid-August had tumbled 16% from that level. Similarly, both the Standard & Poor’s 500 Index SPX -0.34% and the Nasdaq Composite Index COMP +0.0061% peaked in April and then slid almost 18% by August.

Currently, the Dow is up almost 6%, the S&P 500 is up just over 8%, and the Nasdaq is up about 13% since the start of the year. Stocks had fared well on fairly strong earnings reports, steadily improving U.S. economic figures, and relative quiet out of Europe concerning the region’s sovereign debt crisis.

That tide has shifted in recent weeks as first-quarter earnings were released; indicators of U.S. economic improvement have become more mixed, and renewed discord is coming from Europe with recent elections in France and Greece. Read more: Where to go if you ‘sell in May and go away.’
Avoid the claws

With that defensive tone in mind, MarketWatch asked several strategists about their cures for the summertime blues.

John Canally, investment strategist and economist at LPL Financial, said he’s been adopting a defensive stance since February and is currently sector-neutral, with slight overweight positions in technology and industrial stocks.

Those sectors, along with materials and energy stocks, tend to bear the brunt of a summer selloff, he said. While he expects increased volatility, Canally said he doesn’t believe this summer’s trading environment will rival last year, when the aftermath of Japan’s earthquake and tsunami contributed heavily to the market’s woes.

SPX 1,353.39, -4.60, -0.34%
DJIA 12,820.60, -34.44, -0.27%
COMP 2,933.82, +0.18, +0.0061%
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“Utilities, telecom and consumer staples are where you want to be if you have to be [in equities],” said Canally, who also suggested being in cash or mortgage-backed bonds.

High-quality, large-cap U.S. stocks are on the preferred list for Mark Luschini, chief investment strategist at Janney Montgomery Scott.

“The summer’s not only seasonally weak, but that’s especially true for small company stocks because of illiquidity, money is drawn from the markets and people shy from the riskier stocks,” Luschini said.

The strategist is tending toward stocks he believes are still relatively cheap within the energy, health care, and technology sectors.

Examples include ConocoPhillips COP -1.33% , which recently spun off its Phillips 66 PSX -2.00% service station business, a move that characterizes the oil company as one that is “shrinking to grow,” Luschini said.
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