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Don't Panic, But Keep Head On Swivel - By Charles Payne

The hardest part of investing isn't buying- it's managing an investment through the tough periods. The basic rules of exiting begin with the reason why you invested and your temperament. Yesterday, I received this tweet from a viewer:

Robert Olsen ‏@LegalScholar1 3m3 minutes ago
@cvpayne I've had it with the stock market. My SPLK went from 6% to -1% in 3 days. I'm selling everything. Enough of Greece.

I am saddened to see anyone take a loss. Although it's a part of investing, but when it happens out of frustration, then it can be a long-term hurdle to maximize profits. If you are willing to take a one to seven percent loss, then you should consider taking the same as a profit on the upside.

That means you are a trader and other exiting factors include:

  • Automatic stops based on percentages
  • Automatic stops/sells based on key moving averages (10 day, 20 day and 50 day)
  • Automatic stops/sells on news like missed earnings
  • Automatic stops on technical factors

For those who are longer-term investors, you want to refer to fundamentals and consider closing position:

  • Slower top line growth
  • Contracting margins
  • Lost market share
  • Mounting debt
  • Mounting inventories
  • Drifting earnings consensus

If you are a trader, investor, or even both (make sure you know what you are), then base your sell approach accordingly. If you need more help, please touch base with your rep or send an email to the Research desk, but don't follow the herd if you are indeed a long-term investor. Over the past couple of weeks, we have closed out a fair amount of positions and your cash position should be around 25%.

Buy or Sell Signals?

However, there are other factors worrying U.S. investors, including the collapse of China's Shanghai market. We have charted its rise for a while and have highlighted the nature of the latest leg driven by wild speculation by investors that largely do not even have high school diplomas. Of course, in such a scenario, it spells disaster and the only question was when it would happen.

Well, Shanghai has come down more than 20 percent, which puts it in a bear market, although the index is up 99% in the past year. If the Chinese market crashes, it will hurt our market, but to what degree?

The S&P 500 is down for the year. It is nowhere near being up one hundred percent over the past year.

I am not sure how much risk there is since it would be a near-term panic and hard to quantify. However, China's market is in a tailspin and at some point, investors everywhere will take notice.

Speaking of panic, the so-called fear gauge spiked yesterday, and now the market volatility index (VIX) is up 38% this month, pointing to the power of selling that begets selling, and lots of questions without readily available answers.

Buying the Dip

The best strategy for maximizing this rally has been buying the dip and after the worst session of the year, that buy point is within sight. The S&P 500 (exponential) 200-day moving average is 2050, and it could be tested early in the session. If that level holds, look for lots of smart traders to jump into the fray, although Greece officially defaults at 6 PM.

Keep in mind, it was violated last October in a fit of panic. So, it's not an exact science, but the bottom line is that this area has to hold and buyers must materialize sooner rather than later.

Last night, the European Commision made a last- ditch effort to reach a deal with Greece, but it was rebuffed, so the clock is ticking.

Today's Session

After crashing and burning yesterday, the major equity indices began indicating higher less than two hours before the market was set to open. We had some positive domestic data yesterday which was practically ignored including improving pending home sales and moderate improvement in Texas' manufacturing sector. The Conference Board will be releasing its consumer confidence report later this morning which should be another positive as consumer sentiment has been improving over the past month.