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Rally Continues But We Get Cautious

Today’s employment number showed a third month in a row with increasing unemployment. The consensus estimate was for 50,000 jobs lost compared to actual losses of 80,000. One of the lesser accepted definitions of a recession is three months of increasing unemployment.

This, combined with an Oscillator (thanks to Helene Meisler for the graph) showing that we are overbought, leads me to be a bit cautious.

We’ve started to books some profits in things we bought recently that have 15% to 30% gains over their lows a few weeks ago.

We are selling incremental positions in some of the Ag stocks that have soared in recent weeks: Monsanto, Potash, Syngenta, all for big gains.

We are booking 20% to 30% profits in some positions or partial positions that we bought in good companies that were unfairly pummeled in the market correction but which we thought would easily come back: Game Stop, St. Joe.

We raised trailing stops on whole or partial positions in some companies that have jumped 20% or so recent weeks: Apple, Research in Motion.

Our goal in selling partial positions and/or taking profits is to get a bit cautious on the short-term market direction, but maintain core positions in companies that will thrive once the market has fully discounted a recession into equity prices. In earlier posts, I’ve described how I like to use the Oscillator as an indicator of short-term market direction and combine it with fundamentals (like government employment reports) to make sound decisions about the mid- and long-term.

In a market that is likely range bound and reacting (over-reacting to news) it is always prudent to book some profits when you have a chance and reinvest when given opportunities. Plus, its important to have some cash on hand if new macro-trends present themselves so that you can invest with them.

When we come out of the current turmoil, the strongest areas and strongest companies will be the ones that profit the most. We will maintain our core positions in these areas and companies, and build positions back up if the market pulls back and the Oscillator shows we are oversold.

Keep enjoying the rally while it lasts, but be smart about your own portfolio!

Mark