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Deciding Which Stocks to Sell

As investors watch the market fall the issue becomes one of deciding which stocks to sell. A common problem when the market corrects is that investors panic. The Wall Street Journal notes that as the Dow industrials sink many sell everything and then decide what they should have held on to.

U.S. stocks tumbled to their lowest levels since a late August rout, as investors punished the year’s biggest winners and losers alike in a search for profits in the market’s downturn.

Monday’s broad declines signaled further volatility could be ahead in sectors beyond energy and raw materials, which investors have hammered as commodity prices have tumbled.

“The concerns that triggered the drop in stock prices in August are still with us,” said Kate Warne, investment strategist at Edward Jones. Investors are “selling the winners,” she said. “When investors get nervous about the overall market they sell everything and then figure out what things they shouldn’t have sold.”

The market is correcting and may correct further. Taking a rational approach to deciding which stocks to sell makes a lot more sense that panicking and selling everything. That being the case where to you look for keepers and what do you sell as fast as you can?

Anything Related to China

The Chinese economy is cooling off, rapidly. There are certainly winners among China stock ADRs but as the market panics good stocks may be punished along with bad ones. What is the time horizon for getting out of and then back into Chinese stocks? Bloomberg writes about Chinese stocks rebounding. This refers to the Chinese stock market in Shanghai but will be watched for cues by US ADR investors.

The nation had cleared up 69 percent of non-compliant margin lending accounts as of Sept. 23, China Securities Regulatory Commission spokesman Zhang Xiaojun said at a briefing on Friday. A rapid increase in leverage fueled the Shanghai Composite Index’s doubling from November through mid-June, and deepened the rout on the way down as traders unwound positions amid a government crackdown on shadow financing.

“China needs one more month or so to fully squeeze out non-brokerage margin debt, so it’s highly likely this will be done by the end of October,” Jupiter Zheng, a Hong Kong-based analyst at Bocom International, said in an interview. “The stock market will then recover from November as market sentiment improves.”

For short term swing traders this may be good news. Get rid of Chinese stocks if you have not already and buy when you believe that the bottom has been reached. Then cash in when the market rebounds. The problem is believing what you hear from Chinese regulators who are in the pocket of the Communist Party bosses. China has a  lot to do to get its economic house in order and in deciding which stocks to sell and avoid for the indefinite future Chinese stocks may be at the top of the list.

Oil Stocks

The problem with oil stocks is that there is too much supply for current world demand. Even if the Saudis cut back on production other OPEC and non OPEC suppliers will rush in to sell their oil. There is a temptation to get back into oil stocks as many have bottomed out. The problem is that the bottom for oil may last for a long time. Oil stocks are still among those to sell unless you want to wait a long, long time. Better to look for stocks that benefit from cheap oil.

Airlines

Investor Place suggests American Airlines (AAL) as a buy. The point being that cheap fuel prices are a boon for airline stocks.

Falling oil prices might spell trouble for oil stocks this year, but it’s a dream come true for airline stocks like American Airlines (AAL).

In fact, Deutsche Bank pointed to lower energy prices as the reason it upgraded AAL stock and sector-mate Delta Airlines (DAL) in September.

And if airlines prosper so will those who make the airplanes, such as Boeing.

Deciding Which Stocks to Sell PPT





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