It's Time to Sell the Rally and Book Some Profits

After a terrible starts to 2016, the stock market has staged an impressive turnaround over the last few weeks. Rising oil and iron prices have contributed greatly to the recent rally. Amid the volatility, my recommendations based on long-short strategy have widely outperformed the market.

With the stock market on the verge of breaking even for the year, I think investors should use the rally to book profits and should increase their short positions in several stocks. Due to several reasons mentioned in many of my previous articles, I expect the market to reverse its direction in the near future, which is why I think investors should book profits on their long positions and should increase their short positions.
Let’s take a look at the performance of my recent ideas, both long and short.

Time to sell the rally

Over the last few months, I have recommended buying only a few stocks as I was expecting the market to fall. That being said, most of my long calls have performed nicely since my recommendations and I think it is time for investors to book partial or complete profit.

The stocks that I have recommended buying over the last four months are Spirit Airlines (SAVE), JetBlue (JBLU), Volaris Aviation (VLRS), Virgin America (VA), Oaktree Capital (OAK), Macy’s (M), Twitter (TWTR) and Ladder Capital (LADR).

Each of the above mentioned stocks have appreciated considerably, and have widely outperformed the market in 2016. The average return for all the stocks since my recommendation has been roughly 15%. However, I don’t expect all the stocks to continue reporting strong gains, which is why I think investors should consider booking some profits.

Out of these stocks, I think investors can afford booking profits by selling the likes of Twitter, JetBlue, and Volaris Aviation, as I don’t believe these stocks have considerable upside potential after the near-20% appreciation over the last few weeks. I have already recommended readers to sell Virgin America in one of my previous articles.

As for other stocks, I still think they are conservatively valued and can offer more upside. Macy’s, Ladder Capital, and Spirit Airlines in particular can offer a lot of upside potential, which is why I think investors should continue holding these stocks.

Conclusion

The recent rally has put the market close to the breakeven mark, however, I think investors should be cautious and book profits. I don’t think the likes of Volaris, JetBlue and Twitter have a lot of upside potential, and the risk/reward ratio is unfavorable, which is why I think investors should consider booking profits. On the contrary, investors can still continue holding shares of Spirit, Macy’s, and Ladder Capital.
Published on Mar 7, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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