Sell Your Stocks Now: If You Have Short-Term Gains, Take Your Profits
Thursday, May 14, 2009
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 Barrons.
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.
Marc Lichtenfeld
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14 Responses to “Sell Your Stocks Now: If You Have Short-Term Gains, Take Your Profits”
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Marc,
I always shake my head when I review Smart Profits, 123 Trader, and Xcellerated Profits. I know you all are individuals with different takes on market strategy but sometimes you all seem to be proceeding in opposite directions. Marc, you’re now in ‘take profits’ mode (sell); Jim is in ‘not sure’ mode (must check my charts); and Karim is suggesting to buy financials (not taking into account the pullback(?)).
Do you guys @ Mt Vernon ever get together for a weekly meeting to formulate a ‘Best’ strategy to give a united front to your investment followers??? If not you’re missing a superb opportunity! (Please don’t start the Super Combo Trader Service!).
Bob
Marc,
I totally agree with your analysis - the credit card and REIT meltdown hasn’t totally occurred yet - it will come and bring further declines and more volitility (not a bad thing when trying to sell puts or over priced call options.
A question ?- NKTR got a huge bounce today and no one suggested taking a few $s off of the table - I sold 25% of my position as I like to get something out while still holding on with the other shares. Ironically, NABI got stopped out and by selling some NKTR and most of NABI, I was able to net out a $20 gain and regain some capital without a loss.
I did this with ZOLT and TTEK - these stocks are actually lower than when I sold off several positions - I’m questions why waiting until you hit the TS to take some gains - Isn’t the idea of investing to make money - buy and hold today is nuts.
Thanks for the great ideas that yo give us - not all work out but most are winners and fun to watch and learn about new technology
Marc,
I agree with you 100% that the market should, at the very least, retest the March lows. What I haven’t heard anyone explain though is how all this newly printed money will influence the value of this market. All these new dollars are expected to cause some significant inflation. Wouldn’t that inflation also support the prices of stocks? Wouldn’t an S&P at 600 in 2007 be the same as an S&P at 800 in 2010? I just don’t want to underestimate our current administrations ability to screw up an orderly, technical “W” bottom by hyperinflating all dollar denominated investments. Any thoughts?
Randy from Indianapolis
Would appear that with your target of 487 you took the “middle road”.
To stay within zone for a natural reversal the Index can’t go below 514 and should Close above 600 in same time period.
To halt the downward trend the Index can’t go below 459 and again should regain above 600 in short order.
Your 487 derived by : [ 514 + 459 ] / 2 = 487
You’re not really boasting about Karim calling a gain in Citi, are you? I seem to remember you guys pushing it when it was at 35. You were pushing GE when it was in the 30s too.
I’m sure you guys have found some good picks lately — the whole market’s up 30 percent. But don’t boast about Citi.
Marc - No, not a crackpot, a lot of smart people are calling for the same bottom. However, when using earnings to estimate the S&P going forward, it is almost never appropriate to use earnings estimates from the trough of a recession (note: Im not predicting that we are at the trough, just that any low estimate of earnings is not a suitable indicator). In addition, S&P does NOT weight their earnings by market cap, so that AIG’s $60 billion loss last year more than offsets ExxonMobil’s profits. Yet it is HIGHLY unlikely that AIG can continue to lose another $60B/year going forward, while ExxonMobil has a decent chance of sustaining at least $30 billion in continuous forward earnings.
John Hussman uses peak earnings from the previous market cycle, and using that indicator, seems to think that equities are fairly valued right now, ie, able to sustain a long term growth rate of 8% per annum.
I agree and the market today May 14th baffles me unless it has something to do with option expiration Friday. This market reminds me of some kind of pump and dump scheme or are investors just this dumb. I wonder if the big banks with the tarp money are playing some kind of game whereby they bid it up to get on the short side with taxpayer money. Is this how they are going to make their big bonuses and pay back the tarp money while at the same time diluting their shareholder value by issuing more common shares and reducing or eliminating their dividend; however when a person looks at a technical chart of SPY or the QQQQs there is the peak price of this rally so far and the market has had a pullback(very small but still there) and as normal we should have another short runup that should not reach the the prior high before falling in price. If the price exceeds that prior high then I am loss because considering the economic situation further upward movement in price does not make sense. On the other hand I have to keep reminding myself in this country the minority rules, the person that overspends and runs up tremendous amounts of debt are the ones that come out the best, the ones that control their debt, work and pay taxes are the ones that are to suffer, and that we as a nation elect people to represent us that turn into war instigate idiots in the name of freedom for all when others may not want what our elected representatives think they should have. On top of that we have such greed everywhere and no one seems to understand that the greed is killing the whole country besides taking the rest of the world with it.
Hey Marc,
Appreciate your candid comments regarding taking profits while ‘the taking is good.’
As a subcriber to your Access Research, are you suggesting that we sell all our holdings in the stocks you have recommended because you see a strong pull back in the market? I’ve got seven of your recommendations from Access and six are currently profitable. Are you suggesting that I sell everything that is profitable?
Thanking you in advance for your clarification,
Eric Sensiba
I agree with your ananlysis that the bear market is not yet over and may take a couple of years to bounce. However, I am a long term trader and have not touched my market positions since December 1007. Your advice to sell at this stage will mean a significant loss to me. I am therefore, holding on and hoping that in a few years probably I will recover my current losses.
THANKS FOR SENSIBLE REALISTIC PROGNOSTICATIONS. HOW ANYONE CAN CALL A BULL MARKET WITH SUCH RUBBISH FUNDAMENTALS AS WE HAVE NOW IS BEYOND LOGIC. YOUR 487 IS A GOOD GUESS FOR THE NEXT LEG DOWN. THE ONE AFTER THAT…..???
NEXT BULL IS NOT DUE TILL ABOUT 2017 AND THAT IS IF THE PRESENT STOCKMARKET AND SYSTEM SURVIVES THE COMING CHANGES
Hi Marc!
I think you are right on target buddy! I totally agree with your predictions on the S&P. I think we will see S&P 460-490 before the bear market ends. This economy is too bad to prove otherwise. The numbers do not lie. I have performed proprietary mathematical calculations and we will most definitely go down to about 500 on the S&P. Take care and thanks for all the good articles.
Landon
Marc,
I think you are spot right on…
S
O.K. But where do I keep funds now that will earn high dividends and likely appreciate such as oil and gas trusts?
Great post- I am really getting tired of all of the ra ra I have been hearing in the market about how things are going right back to where they were and how we should all get back in quick. It is just not reality when world markets are in such disarray.