Ethanol: Live Fast, Die Young, Take Profits

Editor's note: This column is an update of a portion of the "Mad Money" episode that aired June 14. Click here to read the full Mad Money Recap for that episode.

It's time to take a bow and clear out of the ethanol stocks -- all of them, and as soon as is reasonable. Use limit orders, sell incrementally -- don't just dump everything at once immediately -- but be aware the ethanol fad is done.

Wednesday VeraSun Energy(VSE Quote) came public. The stock was up huge from where they priced it. You've gotta sell, and then sell it again. Look, they even had corn outside the New York Stock Exchange -- that's no good.

On Mad Money, we want you to raise less corn and more hell, like Mary Lease, or maybe just raise less corn and more money.

VeraSun is just the first sign you need to sell. Soon Aventine, another ethanol company, will come public, and then Hawkeye. The first company to take itself public in a speculative bubble goes up big -- that's VeraSun. Then the next, be it Hawkeye or Aventine, which are both smaller, more speculative and in the case of Hawkeye, worse plays, goes up a little. Then the third one out on a speculative run turns out to be a dog -- kind of like Vonage(VG Quote), only not quite as bad. At that point, all of a sudden the market will finally be overwhelmed with sellers of ethanol stocks, and just like anything else, when supply outstrips demand, prices go down.

All these ethanol stocks are up today; now is the time to take profits. Sell into the strength, because it won't last much longer.

Ethanol is in the last stage of a speculative fad's life cycle. I know this because we see it all the time in these hot sectors.

We saw it with the dot-coms in 1999, with the power merchants in 2000, with the oil service names last year and into this year and with solar power. Now ethanol is following the same pattern.