TO SCALE OR NOT TO SCALE

ELOS

A few stocks have (UNH, ELOS, WCG) worked alright. Now the question is should I scale back a bit. There are a few arguments for peeling: this rally smells like a bear-rally, macro economic environment remains questionable, ‘DON’T FINE THE FED�, long term sentiment remains too bullish, and earning momentum is fading somewhat. I am also concerned about ELOS’ run in the last couple of days in front of its earning report tomorrow morning. Should I take the profit here and wait for the earnings, or should I hold on and take the earning risk? Here is the largest tactic differences between retail investors and institutions, where they can have a much bigger position and take some off the table right now, and small investors are limited by their rather small positions. On the other hand, this rally could have a few days to run and fundamentals argue for holding. I have had the problem of selling winners in the past and I am trying consciously to let my winners run. Also, these stocks are in relatively defensive sectors (health care) and therefore are less vulnerable than cyclicals. Earning risk remains to be the biggest concern for ELOS. Punishment will be swift and severe if it fails to deliver its earnings and positive outlook.

Put through an order to write a few cover calls on WCG (Jan 40 @2.30). It probably won’t get filled unless there is a last minute push. To sell WCG at 42.30 by January, I would be rather happy even though I think it has potential for 50 next year.