In the few months since I’ve launched my $100,000 Real-Money Portfolio, the market has continued to surge upward. The gains have been especially pronounced for some of the riskiest and most of unloved stocks of 2011 that have partially been the beneficiary of recent short-covering.

That’s not to discount the validity of this rally. It’s impressive enough, though fairly thin trading volume doesn’t give a lot of confidence that the rally can push the market higher still in coming weeks. (3.1 billion shares were traded among S&P 500 stocks on March 12, the lowest level of 2012.) That’s why I’m staying put with my conservative approach, focusing on stocks that appear to have solid downside support.

Yet careful readers of $100,000 Portfolio will note that I’ve moved quickly to get all my chips into the pot and have just a few thousand dollars left to put into play. That’s why I’m ready to start re-jiggering my portfolio to free up some cash — as my next intriguing buying opportunity could pop up at any moment.



I’m starting the process by selling half of my position (or 500 shares) in Alcoa (NYSE: AA).

I still love this stock’s long-term potential, which you should consider if you own this stock and are a buy-and-hold investor. But I’m growing concerned about some near-term issues. And as the stock has traded up a bit since I bought it, there’s no harm in locking in some of those profits.

What’s changed? Well, on the face of it, all seems well. Shares are up roughly 8% since I bought them, roughly in line with the rise in aluminum pricing on the spot market. (It was $2,020 a ton in early January and stands at around $2,160 today.)

Yet aluminum may be headed for a pullback. Recall that I liked Alcoa simply because high-cost Chinese producers were leaving the market, turning that country from a role as a net exporter to a net importer. (I was also heartened by Alcoa’s decision in early February to reduce its own capacity to support prices.)

Well, it appears that Chinese policy makers are having a change of heart. Planned capacity cuts haven’t taken place, and China now looks to be in a net export position in 2012, which is bad for aluminum prices.

Of greater concern, the Chinese economy appears to be slowing, so demand may soon slump even as supply remains too high. Consider this: When I first recommended this stock in early January, there were 222 million tons of aluminum in the primary Shanghai metals storage facility. Two months later, that figure has spiked to 361 million. The fact that global aluminum prices are now a bit higher is largely due to the relief rally associated with the easing of the Greek crisis.

To be sure, the amount of aluminum stored in the primary warehouse in London is 15 times larger, and this figure is up a modest 2% to 5.1 million tons. Still, it’s China’s impact on aluminum prices that has me concerned. Aluminum can’t rally if China slows further.

Action to Take –> I will sell 500 shares of Alcoa two trading days after you read this. I remain so bullish on the long-term opportunities for this company that I will await entry points to rebuild that position back to the 1,000-share level. This would likely come if Alcoa slips back below $9, or global aluminum inventories start to pull back.

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