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Take Some Profits Before Stocks Stop Soaring

Don't expect this altered reality to boost the market forever


Corporate earnings have gone nowhere for the past six quarters, and analyst expectations for 2013 profits have dropped about 8% in the past year. Meanwhile, expenses are growing faster than paychecks — at least for the middle class, CNN tells us.

But stocks just keep zooming anyway, with the Dow Jones Industrial Average setting two new all-time highs in as many days.

Perhaps we should hope for grimmer economic tidings — then the Federal Reserve could shoot an even bigger stream of free money into the market and lift the Dow to 20,000 in a hurry. Heck, why not Dow 100,000?

I’m as pleased as the next person that so many of the stocks I recommend to my Profitable Investing subscribers, like AmerisourceBergen (NYSE:ABC), Johnson & Johnson (NYSE:JNJ) and Kellogg (NYSE:K) have broken out lately to new multiyear (in some cases, all-time) highs.

However, it’s somewhat concerning how we got here. Our stocks (along with everybody else’s) are rising not because business is so great, but precisely because it isn’t!

Investors are operating in a dream world where the Fed’s ultra-loose monetary policy has transformed bad news — or at least mediocre news — into good news. This state of “altered consciousness” might continue a while longer, but reality will ultimately intrude, probably with a bang.

Meanwhile, we can toast our profits, but we also should protect ourselves against the inevitable day of reckoning. One important element of that strategy is to sell individual stocks when they appear to have exhausted their potential for the next six to 12 months (or longer).

One of the stocks on the chopping block is Oracle (NASDAQ:ORCL), if you own it.

From a business standpoint, the maker of enterprise software seems to be performing well enough. In fact, Wall Street is forecasting record earnings for ORCL in the fiscal year ending May 31.

However, the stock tends to fall faster than the rest of the technology group whenever the market hits a rough patch — and I suspect we’ll be dealing with another broad market downdraft soon after the last of the new IRA money gets deposited April 15.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk “value” approach has won seven “Best Financial Advisory” awards from the Newsletter and Electronic Publishers Foundation.

Article printed from InvestorPlace Media,

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