Stops, Taking
Profits, and Earnings Season
This was a difficult week for bears of financials as
financials shot up 11% on Wednesday for next to no real reason minus a less
than terrible earnings report from Wells Fargo and the federal government
threatening short sellers.
Stops
A week like
this past week reminds everyone that placing stops on volatile positions is
always a good ideal. Place a stop 10% against your position on stocks and place
a stop 20% against your position on options and adjust those stops every night
or in the morning before the markets open. But only adjust the stops when your
position increases in value. If your position decreases in value, leave the
stop where it is so it will get you out if the position moves more against you.
Taking Profits
Taking
profits is never a bad thing. That won’t be the first or the last time you’ll
hear someone say that. When running with a momentum position, taking profits on
a regular basis is a very good ideal. If you schedule every Friday as a profit
taking day, you can cut back on all your profitable positions and evaluate over
the weekend what is your next move. If a day of the week doesn’t suit you and
you would prefer to take profits when a trigger is reached, have you broker
notify you by email when your position becomes 10% more valuable.
Earnings Season
There’s
nothing like earnings season to kill a trend. I always get out of positions
prior to earnings season. Analysts tend to follow the trends and what other
analyst have already done. All the analyst upgrade and downgrade in similar
fashion. But earnings season is the time when companies have their opportunity
to put their spin on their financial situation. And a trend can easily be
broken when a company defies what analysts have been saying for the past three
months. Get out of positions prior to earnings and get out of index positions
before the whole earnings season gets under way.