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How We'll Protect Our Big Gains So Far in 2012 (And Make Bigger Ones)

By Dr. Steve Sjuggerud
Monday, February 27, 2012

Shares of Stillwater Mining 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.
 
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. 
 
Good investing, 
 
Steve




Further Reading:

"For seven straight months, investors ran from stocks," Larsen Kusick writes in Growth Stock Wire. "But right now, the tide is turning. And we should see many more months of gains..." Read more about what's in store for the stock market here: An Argument for Investors to Get Off the Sidelines.
 
Most investors would be thrilled with a 70% gain in three months. But not Matt Badiali's S&A Resource Report subscribers. By tightening their trailing stops, his readers booked 542% gains in 10 months. Read how here: How to Book a 542% Gain in 10 Months.

Market Notes


NEW HIGHS OF NOTE LAST WEEK 
 
Anheuser-Busch InBev (BUD)... Big Beer 
Philip Morris International (PM)... Big Tobacco 
Lockheed Martin (LMT)... Big Defense 
Chipotle Mexican Grill (CMG)... Big Mexican 
MasterCard (MA)... credit cards 
eBay (EBAY)... online auctions  
Motorola Mobility Holdings (MMI)... cell phones 
Comcast (CMCSA)... cable company 
Harley-Davidson (HOG)... motorcycles 
Nordstrom (JWN)... clothing 
TJX Companies (TJX)... clothing 
Yamana Gold (AUY)... gold 
Continental Resources (CLR)... oil and gas 
Marathon Oil (MRO)... oil and gas 
Kodiak Oil & Gas (KOG)... oil and gas
Core Laboratories (CLB)… oil and gas services (seismic)
National Oilwell Varco (NOV)… oil and gas services (rigs)
Hornbeck Offshore (HOS)… oil and gas services (offshore vessels)

NEW LOWS OF NOTE LAST WEEK 
 
Dynegy (DYN)... electric utilities 
RadioShack (RSH)... electronics

premium teaser

2012's big winner could increase 60% in the next few months...  
 
Shares of this company are up 45% so far this year. But it still has plenty of upside potential.
 

In The Daily Crux



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