Urgent: Grab More Profits!

Posted on 02/02/2010, 09:10
By Larry Edelson

You've got a slew of open gains in many of the positions I've suggested in this column, beginning last March. Lots! What's more is that they come on top of gains I already recommended you bag, like up to ...

91.7% in ProShares Ultra Real Estate ETF (URE).

68.3% and 39.7% in Aluminum Corp. of China Ltd. (ACH) and PetroChina Co. Ltd. (PTR), respectively. And ...

27.2% in CNOOC Ltd. (CEO).

But right now, it's time to take action and grab MORE profits off the table.

I'll tell you why in a few minutes. And it's very important information you're going to want to read carefully.

But first, let's review the positions discussed in previous columns, specifically, the ones that I think you should take action on now ...

A. Recommended in my March 16 column of last year ...

Dow Jones Diamonds (DIA), at a price of about $72.31. Open gain as I write this: 40.0%.

Energy Select SPDR ETF (XLE), at the $42.00 price level. Open gain: 32.0%.

I SUGGEST YOU CONSIDER SELLING THE ABOVE POSITIONS AND GRABBING YOUR GAINS!

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B. Recommended in my column of March 30 of last year ...

PowerShares DB U.S. Dollar Bearish Fund (UDN), at a price of approximately $25.11. Open gain: 8.4%.

I RECOMMEND YOU CONSIDER SELLING UDN AND GRABBING YOUR GAINS!

C. Recommended in my column of April 6 of last year ...

Korea Electric Power Corp. (KEP), at a price of $10.24. Open gain: 62.8%. Nice!

I SUGGEST YOU CONSIDER GRABBING YOUR GAINS ON KEP NOW!

Meanwhile ... hold all other positions I've recommended in my Uncommon Wisdom columns.

Now ...

Why, you ask, am I recommending you consider taking so many profits off the table? Am I turning bearish on the stock markets? On natural resources? On China?

My answers ...

A. No, I am not bearish on the stock markets. Right now I am very much neutral - as there's no question in my mind that the broad stock market averages have reached a major turning point.

After a steep plunge in 2008, Plantinum has just barely scrabbled its way back to 2007 prices. It could go a lot higher.

You can see the turning point by understanding the two cycle charts that I have for you today.

The top chart is a picture of the important 24- and 40-month cycles in the S&P 500 Index, showing a top due in early February.

The chart beneath it is also of the S&P 500 Index, but includes all known cycles impacting the market. In this chart you can see that the cycles call for a continued rally in the S&P 500 into August of this year.

Why the discrepancy between the data? What does it mean? How does one handle confusing forecasts like those conveyed by these cycle charts?

First, and bear with me as I get a bit technical, in the stock markets, the 24- and 40-month cycles are usually the dominant forces impacting price behavior. And right now, they show that the markets are very close to a top that could last for 12 to 20 months.

Typically, however, the composite cycle chart of the markets lines up with the dominant cycles. In other words, the bottom chart should show a pattern similar to that of the 24- and 40-month cycles chart above it.

But right now, these two charts are giving conflicting signals. That means ...

That the markets are at an even more significant juncture than one chart alone would convey, and that ...

Either the markets are going to fall hard, or ...

The stock markets are going to show short-term weakness, then skyrocket higher.

I know, I sound like I'm talking out of both sides of my mouth. But I'm not. I've seen this confluence of conflicting cycle patterns before, and it almost always occurs just before huge moves in the market.

Second, strategy-wise, the way to play it is obvious when you have gains on the table, like you do with the above positions I reviewed:

You play it safe and grab your profits - and if the composite cycle picture dominates and the markets take off again to the upside, you then get back in.

In the meantime, you've bagged your gains and put them in your pocket, protecting you against the downside.

What about the fundamentals underlying the markets?

To be sure, they have suddenly shifted toward a more bearish angle - the Republican victory in Massachusetts, suggesting conflict within Washington ... China putting the brakes on bank lending ... and President Obama's bashing of the banks.

But it's not fundamentals that really drive the markets. It's mass psychology. And if the composite cycle showing a rally into August becomes the dominant force in the markets, there will likely be plenty of positive news coming out to support it.

What that news might be, I have no idea. I do know one thing however: No one ever makes big money investing based on news, or interpretations of the news. The big money is made following the markets own rhythms.

Those rhythms, or cycles, say: Play it safe now, and if the market does break back to the upside, there will be plenty of time to get back in. Or, if they move to the downside, there will be plenty of opportunities there as well.

What about gold and gold-based investments? They should be held, no matter what. They are your ultimate insurance policy.

B. No, I am not bearish now on natural resources.

However, while I am a bit more neutral on the resource sector than I was just a few weeks ago, I remain long-term bullish.

The reason I also suggest caution in the natural resource sector is simply this: If the broad stock markets choose to follow the 24- and 40-month cycles down, then yes, we are likely to see a protracted correction in the natural resource sector.

On the flip side, if the composite cycles exert their influence, and the current turning point proves to be nothing but a short-term dip in the markets, followed by a rally into August, then I will turn all-out bullish on natural resources, even in the short-term.

For now, it makes sense to be a bit conservative in the resource sector as well.

C. As for China, I am as bullish as ever. Perhaps even more so. For two chief reasons ...

1. China's market has already had a major pullback - as much as 20%.

Moreover, as you can see from the chart, the cycles point to a bottom now, and a sharp rally into February, followed by another dip. Then perhaps an even more powerful rally in the middle of this year (not shown on chart).

2. Every economic stat I can find coming out of China is extremely bullish. The economy is firing away on all eight-cylinders.

Moreover, I view Beijing's recent brake-tapping - raising bank reserve requirements and even telling some banks to slow their lending - as a positive. It's a proactive move to prevent a bubble from brewing and to foster steadier growth.

Bottom line: I remain bullish on China, recommend holding all China positions, and be ready to add more China and Asian-related equities when I get the signal.

Stay tuned, more than ever before: Many markets have reached important inflection points!

Best wishes,

Larry

P.S. For even more in-depth analysis, specific buy and sell signals, and more, be sure to subscribe to my Real Wealth Report. At just $99 a year, it's one heck of a bargain. To become a member, click here now.

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