(HOC) - Holly - Gregory Spear, The Spear Report Professional Edition newsletter

Gregory Spear, editor of The Spear Report Professional Edition newsletter, explains that lately the market has been in a fairly regular rhythm of stair-stepping higher, and at the moment, it appears to be pausing before the next step up. Read this featured expert’s thoughts on developing a profit-taking plan. Then find out what he has to say about the energy sector. COMMENTARY from December 21 When large-caps in the Nasdaq are experiencing profit-taking, it is difficult for the market in general to make headway. In trader jargon, “the tape feels heavy.” Lately, however, the market has been in a fairly regular rhythm of stair-stepping higher, and at the moment, it appears to be pausing before the next step up. Gregory Spear and his team do not expect a tumble until January and even then, the selling is likely to be moderate. In using the word “moderate,” however, Spear and his team don’t mean to dismiss the possibility that the coming correction might be painful in the short-term if you are heavily long. It is important to avoid the deer- in-the-headlights response that may result from a sharp, sudden loss...followed by rationalizations like "I'm in it for the long term." Spear and his team have very little exposure to this market in their current portfolio, so a sudden correction is not going to hurt them. They know from SpearChat, however, that some Pro subscribers have a tendency to buy on their recommendations but lack a selling discipline. If you have been buying and holding over the last 5-6 months you are probably feeling rather smug. One subscriber mentioned having about 70 positions, most of which were quite profitable. It has been relatively easy to hold long positions during this rally, as pullbacks have been very, very mild. That won’t always be the case. Spear and his team suspect that the next correction will be “designed” to shake the tree rather hard. To avoid getting emotionally triggered by a sharp sell-off and selling into market weakness, perhaps at the bottom, Spear and his team suggest developing a profit-taking plan during the good times. Envision, if you will, 3-4 weeks of selling pressure in which the Dow and S&P 500 drop 5-10%, the Nasdaq drops 15-20%. How will you handle it? Imagine for a moment that the correction has already happened. Would you have preferred to take partial profits during previous strength? Did you put on a hedge early enough? Did you sell your losers in December? Were you greedy and complacent? Markets fall much faster than they rise. Did you have to endure giving back 30-50% of your 5-month gains in just a week or two? Now is the time to be thinking about this and taking steps to protect yourself. The volatility in the energy sector, which experienced another bout of selling on Wednesday despite an incremental increase in crude prices, is hard to get a handle on. At the end of the year, fund managers experience conflicting pressures: the need to protect profits and at the same time, close out the 2006 books without falling behind the benchmarks. Hedge funds, which get paid only for absolute, not relative, performance tend to adjust positions quickly and are likely to be the primary cause of the jerking around. Because such funds often concentrate holdings in hot sectors and use a great deal of leverage, when they unwind positions, the effects on smaller cap stocks can be rather dramatic. The unusually sharp rally in Holly (HOC) and various precious metal stocks on Tuesday is a case in point. Generally, most of those gains were reversed on Wednesday even though the prices of oil and gold were relatively flat yesterday. This article highlights the commentary of Gregory Spear for the Zacks.com audience. Gregory Spear provides insightful analysis, market commentary, and favorite recommendations on a timely basis in "The Spear Report Professional Edition" newsletter. Try it free for 30 days and see if you can improve your investment performance. Learn more about "The Spear Report Professional Edition" and 30-Day Free Trial. And get immediate access to current issues and special reports. Click here now. Here’s How You Can Profit from the Pros Find out what other leading experts are saying about the market. And what stocks they are recommending. For free. Just sign up for our free email newsletter, Profit from the Pros, where we’ll give you the commentary, advice, and insight from those rare few experts who consistently beat the market year in, year out. | Blog Home| VitalStocks Home