"Bulls make money, bears make money, but pigs get slaughtered". Origin unknown.
This continues to be an incredible run for the stock market as the S&P 500 tops the 1,400 level for the first time since June 2008.
The list of companies hitting new 52-week highs continues to increase, including the a number of stocks in the energy sector.
Two companies that hit my radar screen in recent weeks are Westport Innovations (NASDAQ:WPRT) and Clean Energy Fuel (NASDAQ:CLNE). They're two good examples of frothy energy companies that've recently hit new highs.
Westport is an almost 17-year old company headquartered in Vancouver,B.C. It engages in the production of low-emission engine and fuel system technologies that allow light, medium, heavy-duty, and high-horsepower petroleum-based fuel engines to use natural gas and alternative fuels. The higher the price of oil goes, the more attractive their products appear.
The company also designs, engineers, and produces natural gas engines for urban buses, refuse collection trucks, and conventional trucks and tractors, as well as for specialty vehicles. In addition, WPRT offers 15 litre natural gas engines for the heavy-duty trucking market.
They're also involved in the engineering, design, and marketing of natural gas-enabling technology for the heavy-duty diesel engine and truck market. That market could benefit greatly from cheaper fuel alternatives.
Along these same lines, Clean Energy Fuel is an almost 11 year old company that provides natural gas as an alternative fuel for vehicle fleets in the United States and Canada. The company designs, builds, operates, and maintains fueling stations, as well as supplies compressed natural gas (CNG) and liquefied natural gas (LNG) fuel for medium and heavy-duty vehicles.
Its CNG is used in automobiles, light to medium-duty vehicles, refuse trucks, and transit buses as an alternative to gasoline and diesel. The company also sells non-lubricated natural gas compressors and related equipment used in CNG and LNG stations; and produces renewable natural gas, which is used as vehicle fuel or sold for power generation.
Both CLNE and WPRT have had a tremendous year, as the comparative 6-month chart clearly demonstrates. The question now that the stock market and many of these companies have gone up so far so fast, how can you put a protective "floor" under the profits you've made?
One way of course is to just sell and celebrate. Another idea is to sell half your position and see whether the buying continues and the stocks move still higher.
A Reasonable "Alternative": Mental Trade Stops
A "Mental Trade Stop" is a price that you don't want the stocks you are holding to drop below. It employs some notification system (a good example is the one offered by "TradeStops.com").
You'd want to utilize this approach when you feel like a market sector or the market as a whole is about ready to correct or appears to be over-bought and extended.
At the present time the price of oil and the energy sector appears to be correcting. It was reported on Thursday March 15th that the U.K and the U.S. were in discussion to release some of their strategic oil reserves.
My point is: If you have some profits to protect, consider a trailing stop loss strategy that won't show up on the market-makers computer screens.
One of the most effective ways to do this is by utilizing your brokerage firms price or "trigger" alert system. Fidelity Investments, for example, offers this and it is a good example of a "mental trade stop".
When you're notified that your stock, whether it's WPRT, CLNE or any other stock that's had a terrific move higher, has corrected down to levels that you would prefer to sell rather than risk losing your gains, then just "pull the trigger" with discipline and integrity.
The integrity comes from realizing that we don't know how high a stock will trade before eventually (and it always eventually happens) the Market Mavens drive it and the entire stock market down to collect their profits from the stocks they've shorted.
Then they, and we, can buy long these same companies at mouth-watering lower prices. As one market veteran likes to say, " Buy low, sell high, and don't be a 'pig'."
Disclosure: I am long COP.