Friday Jan 27, 2012
An alert TMP reader poses this question
could you please comment for us readers on profit taking and when or where to sell a position. Do you sell at a 10 or 20% profit or do you ride the trend all the way?
I have advocated scaling in positions on declines with a succession of lower orders. I did that yesterday in acquiring HGT on a pullback from what I believe was its low a few days ago.
So, should one likewise start shedding stocks in the expectation of a top in the 1370-1400 range?
Wells Wilder developed theparabolic stop and reverse trading system of trading for just this reason. The system develops a trailing stop sell, or buy order depending on direction.
All stocks did not bottom on August 8 or Oct 4 and will not likely top at the same time either. Commodity stocks like URA took longer as did CEF and GDXJ which did not bottom until late December.
But let's be specific about where we are in our 18 year cycle of stagnation.
We have had two big declines so far, 2000-2002 and 2008-09. I firmly believe a third, and more devastating decline lies directly ahead. I expect that it will take the form of the 1973-74 decline. That bear market never had a 'crash' day of 15-20%. I have exmained the numbers and a month or two of 10% was the worst monthly decline for the overall averages. Since most folks are expecting another 2008 type crash that is why they exited so quickly last August. It also explains why so many went short on the break below 1100 and why we ran out of sellers at 1075.
Of the indicators, the VIX dipped below 17.5 yesterday and the 50 day MA crossed over the 200 MA to the downside. So it is suggesting we are nearing the complacency associated with a top.
The BP over 200 day MA is at 72 so we have another 18 or 20 points to go there.
TLT's 200 day MA is 11 points lower so it could drop a good bit, it is already under its 50 day.
The Dollar dropped under its 50 day MA and the 200 MA lies three points lower.
Barack's sentiment figures are improving with the market, I don't know how high they will go and they do lag the overall stock market a bit.
I expect that money will rush from bond funds like TLT to stocks as we take out higher SPX levels at 1345 and the May high at 1370.
That rush to buy should be the rally one would want to sell into. Insider selling has not picked up yet and that will be another sign for us.
And of course where did one buy in? I admit my purchases of BID and RL were too high. On the reversals yesterday I was not interested in their falling back below my purchase points no matter how enthusiastic I am about the luxury goods indicator. And with individual stocks, one never knows the entire story until it may be too late.
I suspect that one should sell entire positions on the move up rather than piece meal it out. The top is likely to be as short lived as the August 8 and October 4 bottoms. To get an idea of what I mean, turn the SPX chart upside down. those tow lows will lkely paint a picture of what the highs will look like.
It is realistic to believe the high will be in February so now that I think about it, placing some sell orders above the market might be a good idea. Look at BAC and C these are horrible charts for a market that has rallied hundreds of S & P points the last few months. And for an industry awash in Federal bail out money. The message is that there are still plenty of bad loans on their balance sheets.
I did accquire positions in HGT and SJT. With 7.7% and 9.9% yields, one gets paid to wait. I expect the lopsided nat gas to crude oil ratio to return from 2.5% to something more realistic well into th double digits. Sentiment is still negative on the sector.
The markets are backing off a bit here on the daily overbought signals. Again investors are not likely to be rewarded for being in risk off assets of bonds and the dollar. Rushing to buy up here will be the same mistake as going short in August and October for most.
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