"I have received a number of e-mails asking about specific ‘stop loss' prices for our Solar 2012 Portfolio. Below are the points I have selected based upon technical support levels in each stock. I have set these stop points very close, since, as I mentioned in the last article, I did expect the markets to pull back due to the fact that they are short term overbought.
"Solar Stocks remain short term trading stocks, especially ones that are above their 50 day moving average. None of the solar stocks have really formed strong longer term bases i.e. none of our solar stocks are above their 200 day moving average, a generally accepted sign of longer term strength.
"There are two ways that solar stocks can move above their 200 day moving average: they can shoot up abruptly and in doing so become extremely overbought, or they can remain a weak sector for a number of months during which the 200 day moving average would drop closer to the current prices at that time. I think that the second scenario is the far better one for the longer term health of solar stocks and also the most likely.
"The stops for the five stocks in our Solar Portfolio are: CSIQ – $3.60 GTAT; $8.25 LDK; $4.70 TSL; $7.50; and YGE $4.20. If any of these stocks reach these levels I would recommend selling that position YGE is the closest of the five to the stop point.
"Remember we want to minimize our LOSSES and maximize our GAINS. The hardest thing for investors to do is sell when things go wrong. That is why you have to set specific, non-emotional prices to exit if things do not go right. If you looked at the portfolios of the most successful investors you would, in general, see the following pattern: Approximately 80 percent of trades would be either small losses and/or small gains and approximately 20 percent would be very significant gains. This is exactly how we dramatically outperformed the markets in 2010 and 2011. We cut our losses when things did not work out and we let our profitable stock run and maximize our gains.
Background notes
"Keep in mind that there are two basic types of equity (stock) analysis. Below are a brief description of each and its primary purpose:
"Fundamental Analysis – this is the analysis of the fundamental financial condition of a company to identify which stocks you may want to buy when the timing is right. This form of analysis will give you NO indication of the best time to buy a stock or sell a stock.
"Technical Analysis – this form of analysis will tell you "when" to buy a stock and when to sell the stock. It will do this by showing you (in chart format) the basic interaction of supply and demand and when the two change and shift which will indicate a time to buy or a time to sell."
Mr. Lynch has worked, for 35 years as a Wall Street security analyst, an independent security analyst and private investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this field.
He is currently a private investor and has from time to time been a financial/technology consultant to a number of companies. He can be reached via e-mail at: SOLARJPL@aol.com
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