Defensive vs. Offensive Selling
Top 10 Options Trades for 2011
When to sell a stock is one of the most difficult decisions an investor must make. We all think we make the best stock picks. Investor’s Business Daily writer, Paul Whitfield, recently pointed out that there are two general types of selling strategies: defensive selling (to limit losses and/or protect gains) and offensive selling (locking in gains while the stock is still in a bull market).
The latter, offensive selling, is now most appropriately applied to precious metals investments. Gold and silver have risen at an unprecedented rate and almost beg to be sold with the goal of buying them back later at a lower price.
And then there are the stocks that are simply losers and should be sold because you need to protect yourself from further losses. My list of stocks to sell in January contains three such dogs and one precious metal ETF where you should consider employing an offensive selling strategy.
Stock to Sell – Lexmark International (LXK)
Lexmark International (NYSE: LXK), a maker and supplier of printing and imaging solutions, has clearly not lived up to its potential. Revenues have fallen for six consecutive years, from 2005 to 2009, and even though 2010 may see an increase, it is from a very low base.
Technically, the stock is in an intermediate downtrend with a new “death cross” — a very bearish signal in which the 50-day moving average crosses the 200-day moving average. And the stock is threatening to break through a double-bottom, which would confirm that a long-term downtrend is in effect.
Stock to Sell – QLogic Corp. (QLGC)
Networking solutions company QLogic Corp.’s (NASDAQ: QLGC) dependence upon “cloud computing” and Fibre Channel over Ethernet (FCoE) is too uncertain. And competition in this area is very stiff.
Technically, QLGC failed to break above its intermediate bearish resistance line and, in November, the stock broke down from a triangle. Additionally, the stochastic is on the verge of issuing a new sell signal.
Insider selling took place throughout 2010. QLGC has clearly not performed well in a strong stock market and should be sold.
Stock to Sell – Ryland Group (RYL)
Ryland Group (NYSE: RYL) is among the largest U.S. homebuilders and has an extensive mortgage operation. S&P said the company should survive the current downturn in the housing market, but that there will be prolonged weakness in the sector. S&P’s 12-month target for RYL is $12.
The company is “cash poor” and at a disadvantage against its competition. And insiders were strong sellers throughout 2010. Technically, RYL could find support at $16, but this non-performer should be sold.
ETF to Sell – iShares Silver Trust (SLV)
Precious metals have led most other groups with the iShares Silver Trust (NYSE: SLV) advancing almost 70% in four months. The uptrend line is now so steep that it will be difficult to maintain, and a penetration on profit-taking is to be expected. This silver ETF is a good example of an investment where owners should consider selling at least part of their position because of the strong likelihood of a correction. A penetration of the near-term support line would likely result in a pullback to the first area of support at $27.25, and if that is penetrated, a correction to $24 could result.
However, if such an event should occur, investors should buy/add to positions for a resumption of the long-term bull market in precious metals. This advice goes for virtually all of the precious metals stocks and funds that we have recommended: Barrick Gold (NYSE: ABX), Yamana Gold Inc. (NYSE: AUY), SPDR Gold Shares (NYSE: GLD), Gabelli Global Gold, Natural Resources &Income Trust (AMEX: GGN), PowerShares DB Precious Metals Fund (NYSE: DBP), Market Vectors Gold Miners ETF (NYSE: GDX), etc.
