Monday, April 13, 2009

Took Some Profits

In a market like we have had over the last few months, it is important to take profits when you can.  We have had several head fakes.  While I think the recent market run up is encouraging, I by no means think that we are out of the woods.  I am certain that we will be back down in just a matter of weeks.  We could easily get to the 900 level on the S&P before that, but I do not think we are in the midst of a bull market rally which the last few weeks would suggest.

So I sold off a small part of my financial position in UYG.  UYG is the double long ETF for financials.  That is, it tracks a basket of financial stocks like Goldman Sachs, Citigroup, Wells Fargo, etc.  I bought the position I sold off at around $2.40 a few weeks ago.  The stock had gone as low as $1.37 a week after I had bought it so it did not look like a great investment.  I held on, because I knew the market would rebound at some point, and it has.  The stock closed today at $3.82.  I sold it at $3.62.  That is a 50% gain in a little over four weeks.  If you consider I held it at its low, that is actually a 160% increase in that very short time.

Even though the ETF closed higher than when I sold it, I feel I did the right thing.  Sure, it may go up from here, but in this environment, you just cannot ignore a runup like this.   The good thing about having a strategy like I do is that I bought enough on the way down that I still have a very sizable position if the market continues to run up from here.  So I may lose in the gains I could have had on those shares but I will still profit handsomly if the ETF continues to skyrocket.

I advise you do the same.  If you have any trading position, something you do not plan to hold for the long term, take your profits while you can.  If the market corrects down as strong as it has rallied up, you will be kicking yourself for not taking profits sooner.

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