Selling China Pharma on Market Turbulence

Wednesday morning I decided to take profits and sell 60% of my remaining position in China Pharma Holdings (CPHI.OB) at $3.69. The stock has rallied some 30% in just four days, so I certainly can’t be upset with the trade. Frankly, my reason for selling here has nothing to do with the individual stock and everything to do with the fact that I’m a little skittish about the market and want to protect my profits here. While the stock has held up nicely into the market weakness over the last few days, I want to take some off the table in case this strength fades and the market darkens further.

Frankly, with regard to the general market, psychology is beginning to change as people believe housing is going to be a further drag on the economy. Whereas two weeks ago the economic data was pointing toward continued growth, people are once more beginning to sound the recession bell if the Fed doesn’t cut. Therefore, in order to move higher here, we are going to need to build confidence in the idea that the Fed will cut rates again. That will require tame inflation data and weak jobs numbers going forward, and I think we are looking at further downside if that doesn’t happen.

I’m taking my reads here from the rally in Treasuries and the decline in rates, as well as the strong move up in Annaly Capital Management (NLY), for whom another rate cut would be a huge boon. However, there is a bit of divergence here with gold and the euro, as I believe that both should move higher in lockstep with declining yields. While gold has held up nicely, it hasn’t yet made the sprint toward $800 and the euro has yet to really surge much beyond $1.42. If confidence builds in the rate cut thesis, I expect to see gold test $800 and the euro possibly push $1.45, and I would be looking to add to gold positions if economic data (particularly jobs) continues to come in weak.