Time To Sell Sun

It’s that time again. Frequent readers know that I’ve traded shares of Sun Microsystems over the past two years on an intermediate-term basis. This technique is often called swing trading. Whereas day trading tries to capitalize on moves of a few pennies or dimes in minutes or hours, swing trading tries to capture bigger moves over longer periods of time such as weeks or months. Swing trading is less stressful because it requires far less attention to the market.

Sun is a case-in-point. I bought it in fall 2002 at prices between $2.60 and $3, then sold it last June at prices over $5. I fully intended to buy it again at cheaper prices and predicted way back then that they would come. The cheaper prices did come and I told you to buy again in September and then nudged you to buy again in October. The price back then? $3.50 or so.

Had you done so, you’d be pretty happy right now because shares closed today at $5.59. Of course, many of you did buy and are happy and have been kind enough to send thank-you notes. Much appreciated.

It seems to me that the cycle is repeating itself and that we’ve reached overbought levels again. Sun is improving, but it’s not improving quickly enough to justify the stock price’s 60% gain in three months. That means we will soon see lower prices and the opportunity to buy in again.

So, I’m setting a stop-limit order to sell half of my position at $5.50. We may get some blow-off in the next couple of months and I wouldn’t be shocked to see Sun trade above $6. I’d like to catch some of that if it comes. In the event of a sharp correction just around the corner, half of my profits will be protected. I suggest that you consider a similar approach in your portfolio.

By the way, welcome to readers of the 2004 edition of my stock book. You read about this investment in Sun Microsystems on page 197. For updated performance of this idea and the book’s other portfolios, click here.

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