In this article from The IRS Report published in May 2010, Dr Roy Tipping discusses tightening your stops...

There may be trouble ahead, so tighten your stops

Late in October 2009 my proprietary Bear-Bull Index (BBI) changed from being bearish to being bullish. I forecast this probable switch in my article in September 2009 (TIR Issue 299) and although I was two or three weeks premature, the actual switch was correctly forecast. At the time many commentators were still of the opinion that the bear market was not yet finished and that there would be a sting in the tail. Despite those warnings the FTSE 100 is almost 10% higher than it was at the end of October and shows no sign of definitively reversing its upward progress, despite the possibility, as I write, of a hung parliament disturbing the markets.

However, my BBI is now at a higher level than at any time in the past 25 years, apart from one instance: ominously, this was in July 1987, preceding the October 1987 crash that saw the FTSE 100 tumble by 35% in a matter of 40 days. So do I foresee a crash of a FTSE 100 “bubble” within the next three months? I'm afraid that my mathematical and computational skills don't extend this far, but I do believe that for the canny investor, a bubble can be an exciting and profitable experience.

The key tactic is to set your stop-losses and gain-locks at fairly conservative levels – see my article in the March 2010 (TIR Issue 305) – and react to them instantaneously. The TMR portfolio – see table overleaf – has quite a number of gain-locks revised upwards, marked and two of the holdings – DRS Data & Research and SIG – are perilously close to their gain-locks. They will be ejected from my personal portfolio if they teeter below those gain-locks and I urge you to show similar discipline, even at the expense of the odd share that may recover in the short term. My stockbroker allows me to set stop-losses/gain-locks and I will place them on all my holdings so that I am not caught out in the event of a sudden reversal, especially during my Spring holiday in Barcelona.

The TMR portfolio is heavily weighted towards larger companies – only 8 of the 27 holdings are outside the FTSE 350 – not including the American company Signet Jewelers. In this article I'll look at four of the more promising smaller companies that my computerised investment spotting program – TMR – has recommended this past year: John Menzies, Yule Catto, Alliance Pharma and Global Energy Development.

John Menzies (MNZS; 374p; stop-loss 237p) is a distribution company that seems to have weathered the recession with some success. Despite disappointing results from the group's aviation market and especially in magazine sales, the most recent figures show profits of £22m on turnover of £1726m with forecast profits for 2010 expected to nearly double, alongside a doubled dividend. The share price has risen nearly eight-fold since the dark days of early 2009 and after consolidating for some nine months, now seems to be on the march again. I don't see the price rising more than a further 50% to around 600p, but that should be achievable within a year or two.

Yule Catto (YULC; 193.25p; stop-loss 118p) is another company that had a torrid time in 2009 but seems to have turned things around very successfully. The main gain has been in the polymer chemicals division but pharmaceutical production for other companies' products has also been a nice little earner. Again, the dark days of March 2009 saw the bottom fall out of the share price and it is now some five times that low. However a further doubling of the price is a reasonable target, though here the time-scale would be some three to four years.

Alliance Pharma (APH; 35p; stop-loss 24.25p) is a much smaller company of some £46m turnover, quoted on AIM. It was covered by John Snowden in The IRS Report in March 2010, TIR Issue 305. The market has already become wise to this ministar and the shares have risen seven-fold since the beginning of 2009. There looks to be no impediment to this rise continuing for the near future.

Global Energy Development (GED; 130.5p; stop-loss 88.25p) is another AIM minnow in a pond full of very big fish. It is developing oil fields in parts of South America which have not yet shown the achievements of countries such as Venezuela and Brazil. The company's main activities have been in Columbia, Peru and Panama and the annual report, as with most oil exploration companies, is richly laden with aspirations rather than achievements. Although remaining in profit in 2009, the turnover and EPS were sharply down on the previous year. These shares look very speculative but there is certainly the potential for a tripling in their value should any of the recently announced exploratory wells hit a big one.

You can see all of Dr Tipping's articles at www.TheIRSReport.com

Dr Tipping writes in The IRS Report every quarter

Call 0800 756 5437 or click here for more information