Everyone including yourselves say that stocks like DELL and INTC are the "old" leaders and will not lead again at least in the near future. I know by your writings that you have a large position in DELL and probably in INTC as well. Did you sell your positions? Are you holding these positions and waiting? What is your strategy if they begin to rise or fall (I know one is writing covered calls and/or buy puts on a fall and buying calls and/or writing puts on a rise). Will you sell into strength if they start to rally? I can see both DELL & INTC going down even further if they do not make a rally attempt in the next couple of months, particularly when tax selling time rolls around. What should be done with these positions if an investor just purchased them a couple of months ago and got caught in the down draft. Both were purchased as long term holds, but now things are not looking so good for these two companies. Seem to always be late to the game. I do believe INTC will be OK in 6 months to a year, but I'm concerned about DELL. Opinion please. (October 7, 2000)

  The hardest question in any position you have held long term and have a good cost basis in is "how long do I hold if the stock continues to sell?" Some stocks broadcast sell points long before the analysts start ragging on it, but INTC was pretty close to the vest until some negative calls were made against it. Some people use the 50 day moving average as a guide, but that will get you out of some long term positions that continue to move up. Moreover, if you own shares at $10 but the stock is at $70 and looking solid, the last thing you are thinking is selling. Then INTC started to soften with the analyst calls. One thing we do is continually draw trendlines, and we saw INTC break a trendline it held since the May lows, i.e., the bottom of the bear. That was alarming, but overall the market did not look horrible. It did not return over the trendline immediately, and that was worrisome. It continued down and then broke its 200 day moving average. That is a red light flashing. INTC did not trade below its 200 day moving average in over a year. When it tried to break back over that level the next session but was unable to do so, it was time to sell some shares. We thought we made a mistake as the stock shot right back up over the 200 day moving average. Two days later the bad news came out, however, and INTC tanked. It has continued to bleed, but is trying to find support around 40.

Stop losses did not help you on the gap down, though if you were taken out, you have done better as the stock has lost at least $5 since then. Now you have shares of a stock that is porbably not going to do a lot for at least 2 to 3 months as the indication is that the fourth quarter may be weak as well. We can sell, take the loss and look for a stock that is going up versus going nowhere. If we can catch a leader at a breakout in an improving market, we will make money back a lot faster than a stock that is not going to move much. We could be ahead of the game by the time the stock that tanked even starts stirring. Another method is to trade the calls and try to lower that cost basis down without getting called out. For example, INTC has not traded over 42.75 since tanking. We look at selling the $40 or $45 calls when it taps higher (it has been opening higher in the mornings and then selling back) and then let the stock fall and buy them back when it tries to turn up. You can do this aggressively, trading it each time it makes the move, each time whittling your cost basis down. Problem is, if the stock does not go anywhere, the option prices lose a lot of premium, and it become harder to net out a good return on the stock's movements. Thus, if you see the market improving and leaders nearing a breakout, it might be best to dump a losing position that is basically dead money and put it to work in a stock that is going somewhere a lot faster.


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