Shares of Stillwater Mining (SWC) are up 45% so far in 2012 – that’s in less than two months!
And we’re up 33% so far this year in the ProShares Ultra Technology Fund (ROM).
All you hear on the news about the stock market is that the Dow Jones Index hit 13,000 – but it’s only up 6% this year. Meanwhile, many names on the recommended list of my True Wealth newsletter have soared much higher.
I hope you’re in the same boat. Because now, it’s time to protect those gains.
The market is now due for a correction. We need to take action to protect our downside risk.[ad#Google Adsense 336×280-IA]On Friday, my friend Jason Goepfert wrote, “Risk is high for a looming correction… most likely 2-4 weeks and 3%-8% in duration.”
Jason runs SentimenTrader.
He tracks investor sentiment for a living.
He’s good at what he does.
And right now, according to Jason, his indicators are flashing danger signs. After a great start for the year, investors have gotten too complacent.
Specifically, Jason wrote:
The rally over the past several weeks has been concentrated in some of the more speculative sectors, such as Financials, Technology, and Housing… when those speculative sectors get so overbought, the broader market generally takes a multi-week breather, or at the least price gains tend to moderate and flatten out.
Our more speculative True Wealth recommendations have soared quickly. And it’s time to make a few changes…
Looking back on 2011, one of my big mistakes in True Wealth was taking bigger losses than are acceptable a couple times, simply because we used a 50% trailing stop on some speculative positions. I don’t want to let that happen again.
Now that so many of our positions have soared – including positions in technology stocks and homebuilders – I don’t want to risk giving back all these gains. So I’ve tightened ALL of our 50% trailing stops to 33% trailing stops.
This does NOT mean it is time to sell.
I expect a minor correction – along the lines of what Jason expects.
A minor correction will burn off the excessive optimism we have right now… and set the stage for even bigger gains…
I am personally still bullish on stocks. I believe we’ll eventually see much higher highs in the stock market this year – potentially much higher than anyone can imagine.
So I don’t want to sell our positions just yet. I want to stay onboard as long as possible. It’s simply too tricky to try to time when to get out and when to pile back in. So it’s best just to ride it out, knowing we might give back a bit.
Yes, the market is due for a correction, but that’s all it will be. Make sure you protect what you’ve made… tighten your trailing stops.
Don’t sell unless a trailing stop is hit… I expect to see higher highs in many investments in 2012.
P.S. Here are my two favorite ways to track your trailing stops… They are both very different. One of them will be right for you…
www.TradeStops.com, which was created by a True Wealth subscriber, Richard Smith, who has a Ph.D. in math. It’s a website that allows you to track your stops and e-mails you when your stop is hit.
www.Qmatix.com/XLQ.htm, which automatically brings stock market data that you choose into Excel and has many functions available for you to manipulate that data. Leo (the creator) is a great guy, too.[ad#jack p.s.]
Source: Daily Wealth