If You Have Short-Term Gains, Take Your Profits

Includes: DIA, SPY
by: Smart Profits Report

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 (NASDAQ:SIGA)
  • Karim Rahemtulla handed his readers gains of 67% and 20% on Citigroup (NYSE:C) and US Bancorp (NYSE:USB) respectively.
  • Jim Stanton’s 1-2-3 Trader subscribers have bagged 48% on International Paper (NYSE:IP) and 33% and 73% on Costco (NASDAQ: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