How to Trade Linn Energy

NEW YORK (TheStreet) -- When it comes to trading stocks, for some reason it seems easier to buy than to sell. These days, however, investors don't seem to be having any trepidation about dumping Linn Energy (LINE). I think this may prove to be a mistake.

Let's take a look at a stock in the center of controversy, which now sits right at its 200-day moving average.

LINE Total Return Price ChartLINE Total Return Price data by YCharts

Linn has been publicly slammed multiple times over the past 12 months, first by Hedgeye's Kevin Kaiser and then again by Andrew Bary in Barron's (with a strong reliance on Kaiser's research). LINE was in the news again this week as TheStreet's Jim Cramer and Stephanie Link, who co-manage the Actions Alerts Plus charitable trust, cut their position in LINE on Monday and then sold out altogether on Tuesday

For investors, in order for selling here to be a "good" trade depends on what your entry point (or cost basis) was for LINE. 

What if just last week I bought LINE for $32 per share and am down a quick 10%? Do I want to exit the position and take a short-term loss? Or do I want to add to the position and lower my effective cost basis (and improve my effective yield -- LINE's yield as of Wednesday exceeded 10%)?

The answer: It depends.

In the case of LINE, we need to consider whether the partnership's distribution is under pressure. A glance at the chart below shows a very scary picture of LINE's distribution getting cut by what looks like almost 70% last year...

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