If You Have Short-Term Gains, Take Your Profits 33 comments
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by Marc Lichtenfeld, Senior Analyst, Smart Profits Report
If you’re looking for a direct, non-wavering opinion, you’ve come to the right place…
While some of my financial commentary counterparts like to sit on the fence and hedge their bets, I’m offering you this:
If you have short-term gains, I suggest you sell your stocks now and take them.
Since the stock market rally began two months ago, I’ve argued that this is not a new bull market. In fact, I’ve said it’s nothing more than a bear market rally. Bear markets are actually well known for sharp rallies, but bull markets never start by bouncing 40% off the lows in just two months.
Sell Your Stocks Now For Short Term Gains
If you subscribe to the Xcelerated Profits Report or any of our VIP trading services, you’ll know that we’re watching the market all day, every day, so we can let you know exactly what positions to keep, which ones to sell… and when to sell them.
We’ve done so profitably over the past few weeks. For example…
- My Access subscribers banked 65% on half of SIGA Technologies (SIGA)
- Karim Rahemtulla handed his readers gains of 67% and 20% on Citigroup (C) and US Bancorp (USB) respectively.
- Jim Stanton’s 1-2-3 Trader subscribers have bagged 48% on International Paper (IP) and 33% and 73% on Costco (COST) options.
- And Lee Lowell is still riding a perfect track record in his Instant Money Trader service, which began last November.
We’ve had some losses, too, of course. But the point is, for investors who aren’t following a specific program or editor, put some profits in the bank now and wait to get back in at a lower price.
Sure, we’ve enjoyed some much-needed respite from the economic tidal wave that crashed on our shores last year. But that was mostly a stock market reprieve. For the average American, things are still tough.
- Unemployment is now at 8.9% and heading higher. And when you take into account the number of people who are under-employed, or have stopped looking for work, the number nearly doubles.
- Last week, initial jobless claims rose by 5% to 637,000.
- A record 6.56 million people are collecting unemployment benefits. It was the 15th straight week, that figure set a new record.
The bottom line is that no matter what the stock market is doing, we won’t have a sustainable bull market until the market anticipates real economic recovery. And record unemployment figures are not a sign of recovery.
Insiders Don’t Trust This Market… And Neither Should You
Company insiders see the writing on the wall, too. In fact, they sold over eight times more shares than they purchased last month, according to Barron's.
While you should never look at one insider’s sale as a signal of a company’s fortunes, when execs and directors are rushing for the exits at the same time, that’s a very strong hint that upside may be limited.
Insiders understand their companies’ prospects better than anyone. And if they’re cashing out, so should you.
Bear Market Rallies Don’t Become Bull Markets
The common denominator about bear markets is that they don’t suddenly do a 180-degree turn and become bull markets. Instead, they typically carve out bases that allow stock to stay rangebound for a while.
This shakes out the weak holders and gives the market a chance to build a head of steam for a meaningful and sustainable move higher.
To illustrate the point, take a look at the two charts below, comparing the last bear market with the current market.
The first one is from the summer of 2001 until the spring of 2005 and shows a typical pattern in which the bear market carves out a base and eventually turns into a bull market.
Now take a look at the chart below, which shows the current market situation. Could we be at the upper end of what will eventually be the base? It’s certainly possible.
But it is highly improbable that after falling so sharply, the market will suddenly bounce right back and recoup those losses.
Pundits Declare The Bear Market Is Over…
During the current bounce, many pundits have boldly declared that the bear market is over.
Perhaps. But there’s a big difference between a bear market ending and a bull market beginning. If stocks are going to stagnate or trade in a range for a while, you’re probably better off having your money in other assets that will earn income or may appreciate.
On March 5, I recommended not selling stocks into the panic and said, “Be prepared to see a strong surge upward. Bear market rallies are notorious for featuring fast and sharp moves higher.”
The very next day, the S&P 500 hit a low of 666 - and proceeded to jump 38% higher over the next two months.
When I wrote that column on March 5, the wheels were truly coming off the market and the economy, with many investors in full-on panic mode. I suggested holding on for a rally…
Now Is The Time To Sell Your Stocks
Now is the time to begin selling your stocks.
I also said the bear market won’t be over until the P/E ratio of the S&P 500 falls below 10. The expected earnings for the S&P 500 in 2009 is $54.15. Keep in mind, that figure could go lower if the economy is worse than expectations.
Considering the difficult economic times, I believe investors should prepare for an S&P 500 that is below 500. My official target is 487.
I know that’s not a popular stance to take. There are many good analysts who believe just the opposite. But considering market history and the lack of improvement in the economy, I don’t see how the market doesn’t make new lows from here.
Do you agree? Think I’m a crackpot? Maybe both? Feel free to send me your comments.
Disclosure: No positions
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This article has 33 comments:
My biggest concern is that after the 08-09 slide, not only have many insiders left the market or started betting against it, but everyone's stop limits have likely been adjusted a lot higher because not everyone is convinced the rally is real. Everyone wants to make sure to lock in their gains from this rally.
So if a lot of investors are doing what I did -- setting very tight stop limits (say, at 70% of their gains from this rally) -- then this has real potential to become self-reinforcing if the market dips far enough. Another 2-3% market dip could trigger enough stop limits to initiate waves of selling that would hit deeper sell limits and cause the decline to accelerate quickly.
Why do all these authors who know what is going to happen disclose "no positions." Why not some short recommendations?
A new refreshed era of "anything goes" in business as long as you can get away with it also encouraged the start of new investment.
The financial engineering and money laundering shell game had not yet destroyed our economy.
Add to this robust deficit spending, deeply oversold markets, record low interest rates and the resulting growing real estate market, cheap mortgage equity loans and margin rates, and pentup demand and the makings of a new bull run was there.
On May 15 12:04 PM Cetin Hakimoglu wrote:
> Due to complaints from staff you'll find much, much few posts by
> me. :) Not surprisingly I angered everyone with spam and nonsensical
> permabull cheerleading.
The other mistake you make is that you do not admit prior errors in judgment. owning up to past mistakes and why you feel this rally is different would help. Understand I have been listening to each and every person say "the bear is over" at every rally.
common sense says to far too fast, I actually think the low will hold, but see retest of first low.
Of course it will all depend upon how goldman decides to manipulate the Nyse, so any conjecture really is just conjecture
On May 15 12:04 PM Cetin Hakimoglu wrote:
> Due to complaints from staff you'll find much, much few posts by
> me. :) Not surprisingly I angered everyone with spam and nonsensical
> permabull cheerleading.
On May 15 12:04 PM Cetin Hakimoglu wrote:
> Due to complaints from staff you'll find much, much few posts by
> me. :) Not surprisingly I angered everyone with spam and nonsensical
> permabull cheerleading.
The crux of who will thrive and who will survive depends on capital investment. The US has not got a hope in hell of getting the investment it needs without major structural change. China has no problem of sustaining investment. Europe is not about to boom like the Developing World, but if it needed to, it could do much more to stimulate its economy. The difference is that the Europeans know that there are no short-cuts to sustainable prosperity. The US on the contrary is like a fruit machine addict. The waster needs to get a job, stay out of the clubs and bars and start building a future. How many gaming halls actually go bust because a high roller reaches his credit limit and cannot pay?
On May 15 12:54 PM jeandit75 wrote:
> With regards to the article, the profit taking is not short term
> but long term...this is a global recession that risks to become a
> depression when China goes under and when the US FED runs out of
> munition so if you own stocks well, do what you like but not for
> me.
You seem like a smart guy. Just apply more of that intelligence to thinking rather than acting (like, say posting 50 entries a day) and I'm sure you'll turn out all right. Good luck.
On May 15 12:04 PM Cetin Hakimoglu wrote:
> Due to complaints from staff you'll find much, much few posts by
> me. :) Not surprisingly I angered everyone with spam and nonsensical
> permabull cheerleading.
On May 15 05:07 PM thiazole wrote:
> RSAAKS and DONE_SONZ, I agree with both of you for the most part.
> Inflation will play a big role in the stock market not plunging and
> even going up from here. I also agree that since inflation and a
> weakening of the dollar over the next several years is almost a certaintly,
> that gold will protect money. I don't think gold is ever a "smart"
> play, but a good "defensive" play. To make the "smart" play, you
> need to think about where inflation will hit the hardest. It won't
> be gold. It will probably be energy. Again, this is the same thing
> that happened in the mid 70s. Energy played a big role in the 1974
> recession, and energy prices did relax some during that recession,
> but when monetary policy hit and the real inflation started, energy
> took the brunt of it. In 1974, they thought energy prices were bad,
> but they handn't seen anything yet.
But lately, your comments have been much better than many here at SA. This place has seriously deteriorated. It used to be fairly intelligent comments, without all the political whining and agenda-driven comments. Now, SA has become just another comments section, with useless trolls hanging around to click the thumbs down-- not because a comment was poor, but because it does not agree with their idiotic political viewpoint, whichever side that may be.
And trolls all over-- even "following" so that they can get in and click the thumbs down on each new comment. This is truly a pathetic situation.
On May 15 12:04 PM Cetin Hakimoglu wrote:
> Due to complaints from staff you'll find much, much few posts by
> me. :) Not surprisingly I angered everyone with spam and nonsensical
> permabull cheerleading.
Here is my theory on gold, and I know I'm not the only one that sees it that way. Gold has an almost fixed value. It is worth the same right now as it was 10 years ago and what it will be 10 years from now. It doesn't have much intrinsic value except in its scarcity, but it also isn't consumed so the supply remains constant. Because of that, I can't see any real reason why its value would ever change. As a result, this means everything else is changing in value a lot - it means that you can have ALL currencies drop in value simultaneously, which might give the illusion that gold has risen in value when it hasn't. I kind of think that has happened lately. We are in a global recession and even though some currencies have out performed others, they have almost all fallen in value.
So if you have a single currency that falls in value and you therefore have inflation, then you'd expect gold to go up in value relative to the currency at the average rate of inflation. That takes the guess work out of it, but it also means that you aren't really gaining value on your investment. If you instead invested in something that will outperform the average inflation, then that would leave you with more value than you started with in the end.
On May 15 05:53 PM DONE_SONZ wrote:
> The commodities will be your best bet in the reflation,but I have
> to say gold the most.Currency problems are a real issue.I think alot
> of people are starting to finally realize that.Demand can slow for
> higher priced oil as we have seen before.Gold will always be thought
> of in times of inflation,currency problems,and debt problems.Im an
> oil bull too longer term,but there are still a favorable size risk
> with oil in my opinion.
mises.org/article.aspx...
While I do agree that the market manipulators are probably going to feed on us once again I think that the nascent "green shoots" in Brazil, China and even the home of Ivan may be fertile ground for some investment. While the Chinese do depend on us to buy their stuff in return for them financing our largess with treasury purchases they have put on a full court press for infrastructure expansion that boggles the mind. They have announced a full commitment to base metals for one area. This bodes very well to aluminum (ACH) and copper. The recently approved deal with RIO goes further to that idea.
Emerging markets have been outstanding the last few months and I feel there is more there.
Be happy and keep smiling- They will wonder what you're up to.
Risk appetite (this spread) follows its own path, and it's not going to shrink this fast until the trillions of option-ARM loans have reset, and then the expected defaults have worked their way through the system.
When I spoke with Countrywide about writing some software for them in 2007, the software was to improve the throughput for foreclosures. The execs knew about this scenario back then.
On May 15 12:54 PM jeandit75 wrote:
> With regards to the article, the profit taking is not short term
> but long term...this is a global recession that risks to become a
> depression when China goes under and when the US FED runs out of
> munition so if you own stocks well, do what you like but not for
> me.
Consider an index that only has 2 companies - a failing bank that is losing $1 billion a year and an up and coming widgets maker that makes $1 billion a year. The market cap of the bank is $100 million and the market cap of the widgets maker is $4.9 billion, so if you buy the index your portfolio will be 98% widgets maker and 2% failing bank (based on the ratio of market caps). The combined earnings in this index is still zero, so with an infinite P/E the assumed value of the index is also zero.
So person A says, "I won't invest in stocks until this index's P/E is at 10 or lower" and person B says, "P/E is a stupid way to analyze an index, I'm buying $1000 of the index". After 5 years, the bank is gone but the widget maker is now making $5 billion a year and the recession is over so its P/E jumps from 4.9 to 10. So now the market cap of the widgets maker is $50 billion and person A is finally getting in (because the index finally has a P/E ratio of 10) and person B's investment has already grown 10X.
On May 16 09:54 AM Windwood Trader wrote:
> Frankly, I don't see the rationale for a PE of 10 on the S &
> P. Historically it has found a happy home in the 14-16 area. Granted
> the earnings on the S & P will slither down some more though
> lowering the potential for further price improvements.
>
> While I do agree that the market manipulators are probably going
> to feed on us once again I think that the nascent "green shoots"
> in Brazil, China and even the home of Ivan may be fertile ground
> for some investment. While the Chinese do depend on us to buy their
> stuff in return for them financing our largess with treasury purchases
> they have put on a full court press for infrastructure expansion
> that boggles the mind. They have announced a full commitment to base
> metals for one area. This bodes very well to aluminum (seekingalpha.com/symbo...)
> and copper. The recently approved deal with RIO goes further to that
> idea.
>
> Emerging markets have been outstanding the last few months and I
> feel there is more there.
>
> Be happy and keep smiling- They will wonder what you're up to.<br/>
www.sectorspdr.com/spd.../
While ETFs are diversified, and I have invested in them a few times, what I like about following them is that they are quick sector overviews. As the author indicated, and I agree, it is a good time for taking a few profits, and I have done that. However, I didn't park all the profits, and I continue to find what I consider more long term investments. I also try to have some cash on the sidelines in the event of a dip, since I would like to find a few more buying opportunities. We still have potentially bad news that needs to happen, and then we will see how that affects the markets. Be nimble, flexible, and aware.
On May 15 12:34 PM thiazole wrote:
> It is very possible that the market could stagnate for months, but
> I doubt the market will look like 2001-2003. Compare it to more similar
> recessions. The 2001 recession was barely even a recession and was
> based in a stock market bubble (so looking comparing the stock market
> then to now is like comparing the housing market then to now). Look
> at a recession that had similar GDP contraction, similar unemployment,
> was global, and had a similar housing market contraction, ie, 1974.
> The Dow was around 1000 in late 1973 but deteriorated through 1974
> until it showed a very significant crash in the fall of 1974, a mild
> bear market rally shortly followed, and another even more dramatic
> crash in December. The Dow hit the upper 500s in December then climbed
> all the way to about 850 (up around 44%) then stagnated for several
> months. This is much more like what we're seeing now, and because
> the fundamentals between the two recessions are so similar, it is
> much more reasonable to expect a similar pattern.
On May 15 02:36 PM I am NOT Ned!! wrote:
> I'm impressed. That took guts to write down without any misdirected
> anger.
>
> You seem like a smart guy. Just apply more of that intelligence
> to thinking rather than acting (like, say posting 50 entries a day)
> and I'm sure you'll turn out all right. Good luck.
>
> On May 15 12:04 PM Cetin Hakimoglu wrote: