Sunday, November 18, 2012

Ringing the register - capital gain taxes

Investors have been puzzled why the (supposedly) best tech stock in the world AAPL has entered the bear market territory recently. One of the thesis that has been floating around is, long term investors are locking their profits after a tremendous 3 year run. On the other hand, stocks like RIMM, FB which have been on the losing end have gained in the last 2 months. How come? Investors who have been long the winning stocks are closing their positions by selling, while investors who have been short the losing stocks are closing their positions by covering. A strong reason to believe this is probably an increase in capital gains taxes next year. The 1st chart shows YTD run in all the highlighted names.
Visit StockCharts.com to see more great charts.

The 2nd chart shows the performance in the last 3 months.

So, should you be loading on the winners, after this 'sale' is over? If you believe the strong fundamentals are intact, you may do so with caution. But, I insist that you exhibit a fair bit of caution in buying stocks whose technicals have been severely damaged like this one. Damage to the technicals in a stock will skew the view of investors, no doubt. Till the time the technicals are corrected, you may stay away from those stocks.

I included Homedepot HD which has been up a good % in both the charts, despite selling seen in other names. HD is sound both technically as well as fundamentally. In ideal case, given the ongoing market correction, I am not suggesting you to go long any stock right away. But, should the market rally after the market internals rise, names like this would be the 1st on the radar.

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