October 13th, 2010

A Plan for S&P 1220

We’re all watching thankfully as the Peruvian miners are being pulled out of their deep hole. Back here at home, many investors are watching thankfully as their portfolios are slowly coming out of their deep hole by a very obliging market. For the miners, it’s as if they’ve been reborn. Perhaps our portfolios will get a second chance as well.

The market is halfway between the neckline of that inverted head-and-shoulders reversal pattern and the price target of 1220. Rather than being pulled out of thin air, that objective actually matches last April’s peak and is approximately the same percentage above the neckline as was the July trough below, a standard rule-of-thumb (click on image to enlarge):

While those of us who embraced the inverted H+S interpretation feel relieved (and financially a little better off), we have to look to the future and try to figure out the next game plan.

If the market makes it to the price target (something that’s likely but never guaranteed), then do we sell our winners? You read different services or listen to different talking heads and learn of all sorts of strategies none of which are very satisfying:

  • “Buy some put options on the SPY as insurance.”
  • “Sell half the position of each stock with a 25% or more gain.”
  • “Sell your losers, keep your winners.”
  • “Sell your winners, keep your losers.”

We also get all wrapped up in year-end tax questions like:

  • “Take your gains this year because taxes will be going up next year.”
  • “Switch your dividend paying stocks for growth stocks because of the end of increased tax rate of dividends.”
  • “Take your losses next year because they’ll be worth more then.”

I think I’m just going to sit tight, see what happens at 1220 (if we get there) and, just to be on the safe side, start working on

  • putting together a prioritized list of the stocks and ETFs I’d sell in order to increase my cash position in case the market decides to consolidate
  • assembling a list of stocks and ETFs to buy to put my remain cash to work in case the pleasantly surprises us all and continues on a tear through 1220 on its way to much higher levels.
Subscribe below or click here to learn more about help for navigating turbulent markets.