Hey Trader,
Here’s how I decide when to take profits. My consumer staples climbed 10% to 20% in October.
That’s like getting a full year’s return in one month. When I see a move like that, I get out.
I made a killing on Pepsi for my Genesis COG members. We’re out of all of those names now.
Those stocks are still climbing. I’m out anyway, because the market gives and then it takes.
Money managers have been rotating in a panic. Rotation means pulling money out of one sector and piling it into another.
They got burned by holding too much tech. Now they’re crowding into staples, and they’ll get burned there too.
If you hold a stock that’s gone vertical, you’re standing in that same crowd. Stay too long, and you’ll hand those gains right back.
I’ll show you my simple test for when to take profits. You’ll also see why I sell into strength.
Then I’ll show you the warning sign that a rotation is about to end. That’s when every sector gets hit at once.
October handed us a number that’s statistically stupid. Let’s start there.
What October’s 6% Really Told Me
Strip the AI stocks out of the S&P 500, and October looks very different.
Without Nvidia, Oracle, Meta, AMAT and AMD, the index rose 6% last month. That’s its best monthly return in four years.
I call that statistically stupid.
It tells me money is rotating in a panic. Managers got hurt holding too much tech and ran straight into staples.
The thinking went something like this. Just buy Pepsi, buy Altria, buy anything in consumer staples.
That’s panic money, and it’s unhealthy. Panic moves like this one show you exactly when to take profits.
A move like that also tells you the rotation game of the market.
When To Take Profits: The Yearly Return Test
Pepsi was only one name. Constellation Brands ran the same way, and I made $20 on it in a week.
That’s like a yearly move in one week. That’s ridiculous.
When a stock squeezes a year into days, I don’t need a better reason to sell.
You can run this test on anything you own. Before deciding when to take profits, walk through these three checks:
- Know the stock’s normal pace. Think about what it usually gains in a full year.
- Measure the move you just got. Line it up against that yearly pace.
- Act when the two match. A year’s gain in a month or a week means it’s time to sell.
A yearly return doesn’t belong inside a single month. When you see one, panic is doing the buying.
When a month pays you like a year, take the money and run.
Why I Take Profits While The Stock Is Still Rising
The staples I sold are still going up. I don’t mind.
Deciding when to take profits means accepting that a stock may keep climbing.
I’m a trader. The market’s going to give it all back eventually.
Panic money came in fast. When the correction comes, those managers will be stuck overweight in staples.
I’d rather not be sitting next to them.
If you worked for me, I’d tell you to sell that staple today. I’ve gotten out of most of mine, and I’m done with them.
Knowing when to take profits doesn’t mean dumping everything. I still own financials.
They’re doing really well. I think they’ve got a little ways to go.
I also bought the airlines when nobody wanted them. Now they’re ripping, and my account’s up 2% on the day.
Trim what’s gone vertical. Keep what still has room to run.
When To Take Profits Before A Rotation Ends
Right now, money keeps hopping from one sector to the next. Managers rotate out of one group and pile into another.
Correlation measures how closely different stocks move together. Eventually the correlations come through.
When that happens, the sectors stop moving on their own. They start falling together.
Count how many of the 11 sectors are still working. When 9 of them stop, you’re in big trouble.
You’ll look up and realize there’s nowhere left to rotate. That’s when you know you’re in trouble.
Money still has places to go right now. My financials are still working.
This correction hasn’t come yet. When it does, every sector is going to get annihilated.
That’s my signal for when to take profits. I’m taking them now, while the rotation still pays.
Once there’s nowhere left to rotate, every sector gets hit.
Knowing when to take profits only matters if you know where to look next. I just bought a stock that’s breaking out today.
I’m not naming it here. Join Burn Signal, and I might tell you what it is.
Each Burn Signal alert gives you the ticker and the signs that triggered it. You also get a stock play and an options play.
You decide how you want to trade it.
Professor Jeffrey Bierman
Creator of the Genesis COG System
