Protect Your Profits Now!

| February 4, 2011 | 0 Comments

Back in mid-January, Intel (INTC) shocked the investment world with a bold statement.  The company said they’re going to spend a whopping $9 billion in capital expenditures this year.

In case you don’t know, that’s a huge number!

First of all, it’s a jaw-dropping 73% higher than last year’s capital spending of $5.2 billion.  What’s more, if the company follows through on their promise, and there’s no reason to think they won’t, they will break a 20-year old company spending record.

The current record is $7.3 billion spent in 2001.

The funds will be used to build and equip a fourth factory as well as upgrade existing plants.  This big spending commitment speaks volumes about the company’s outlook for the chip industry.

However, it also bodes very well for chip equipment makers.

When the industry leader says they’re going to spend a record amount on chip equipment, it usually means we can expect a boost in spending from other industry players.  As you might expect, stocks of chip equipment makers surged across the board on the news.

And several of them even set new 52-week highs.

You may recall I began recommending chip equipment stocks in a series of Dynamic Wealth Report articles back in March 2010.  I banged the table on several terrific stocks like MKS Instruments (MKSI), Novellus Systems (NVLS), Teradyne (TER), and Nanometrics (NANO).

After trading sideways through the summer months, these stocks began surging higher in August and September.  And they’ve been moving higher in a strong uptrend every since.

Here’s how these stocks have performed since I recommended them…

  • MKSI… up 57%
  • NVLS… up 53%
  • NANO… up 64%
  • TER… up 76%

Not too shabby, right?

Now I know a good number of you bought these stocks on my recommendation.  I’ve been flooded with emails asking if it’s time to take profits off the table.

Here’s my take on the situation…

The tech-heavy Nasdaq index is fast approaching the pre-financial crisis highs in the 2,800 area.

It’s hard to believe the markets have nearly clawed their way back to the highs set in late 2007.

But we’re almost there!

I expect this 2,800 area to provide strong resistance.  By that I mean it wouldn’t surprise me if investors start locking in profits around this level. Let’s face it, a good number of investors are now sitting on some hefty gains.

What’s more, anyone who bought stocks near the 2,800 level in 2007, is close to breaking even.  After riding out the market’s plunge, they now have a chance to do what certainly seemed unthinkable in late 2008 and early 2009… get their money back.

And I assure you, many of them will do just that.

So what should you do with your chip-equipment stocks?

You’ve racked up some nice profits in a short period of time.  The last thing you want to do is give back those hard earned gains.  However, you also want to let these winners run.

The market might blow right through the 2,800 level… it could happen.

The best way to protect your profits while letting your winners run is to use trailing stops.

Trailing stops are sell-stop orders set at a specific percentage below the market price of a long position.  As the stock price rises, your sell-stop moves up (trails along) with it.  This protects you against taking a larger loss.

However, if your stock drops past your stop, your shares are sold at the next available price (not necessarily the stop price).  This helpful tool allows you to lock in profits when your stock is falling without having to watch it all the time.

If you don’t have trailing stops set on these surging chip equipment stocks, go ahead and put them on now.  If you’re already using trailing stops, you may want to tighten them up a bit.  If you follow this advice, you’ll be sure to lock in most of your gains.

Best of all, you’ll still profit as the market moves higher… while protecting your downside!

Congratulations on some great winners!

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Category: Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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