Grinding Higher...Be Prepared

The S & P 500 is now only about 20 points from setting an all time high above 1550. This will be a key benchmark going forward. Especially with second quarter earnings now coming into focus, starting this week. I am still favoring the downside verses a blast off to new continuous highs. But, this of course, can not be ruled out. The Bulls just might be crazy enough to keep buying and let the market professionals suck in their hard earned dollars. Greed will lead to the downfall. It always does. This will never change.



Can I believe it? Intercontinental exchange (ICE) has rallied all the way back up to near break even. With the vote today concerning the takeover of The Board Of Trade (BOT), anything could happen with CME and ICE. Of course, this is not the way to trade yourself to financial freedom. The loss on this trade should have been cut short and then possibly re-entered at lower levels. I would now have a great gain to show for my efforts. This is exactly why you need to have a specific plan and follow it directly, one day at a time. All the while being open to doing things you are not accustomed to regularly doing. That is; reversing positions when wrong. Such as taking a small loss and then re-entering at a lower price when it appears the odds of a smart turnaround at very great.

The NYX position was sold on July 6th at $15.80 ($1,580). This resulted in a nice $2.00 ($200) profit on this trade per contract. NYX had rallied up to resistance at around $76.00. Today, it is trading near that price and could break lose to move higher. But it is still in a confirmed downtrend, so I will wait for some confirmation of a major reversal. Also on Friday, I bough the July 125 put option on Foster Wheeler (FWLT) thinking that it might be ready for a quick reversal that would be good for a few points. Wrong! It did trade down a bit, but quickly reversed to make new all-time highs. I had entered the position (UFBSW) at $13.00 and set a stop of $114 on the stock price. I raised my stop as FWLT began to move in my direction and had to sell when it reversed hard to the upside. I sold it for $12.00 and this resulted in a $1.00 loss. This also resulted in being a day trade, as well as a trade against the prevailing trend. If this stock was to break out to the upside further, without a close stop, it could result in runaway losses. That is what can happen when stops are not used and you trade against the major trend.

I entered another new trade this morning. This one is a trade with the trend. I have purchased some call options on Potash Co. (POT) for $16.20 ($1,620) per contract. POT was trading at $81.00 and near all-time highs. If the market continues to move higher, this one should make newer highs. I have set a stop of $79.50 (approx) to keep losses small. The upside target will be in the $83-85 area. The symbol for the July 65 call is PVZGM and it expires in two weeks. So far, the market has reversed and I am under water on this one.

Why is is important to trade with the trend in the majority of cases? Look at two recent strong stocks. Research in Motion (RIMM) and First Solar (FSLR). Both of these stocks have exploded to the upside and would have been great stocks to be trading. Going against the trend, despite meteoric rises already, would have been suicide. You cannot reasonably predict with any constant certainty how far a stock may go up or when its upward swing will definitely end. Chasing highs with more buying or trying to call tops is a high risk game. The same with calling bottoms, because it is so hard to tell how low is lowest.

As far as getting ready for the S & P 500 to challenge its all time highs, I am saying be prepared for the possibility of a major reversal and some truly serious downside action. The move to new highs in the S & P will certainly get the juices flowing for a major bull market into the forever as Bulls will be doing the happy dance with no thought of anything but more gains to come. GREED to the max. It will be the perfect time for Mister Market to deflate those bullish expectations and lay waste to the Bull's greedy plans. Just be aware of this possibility. Nothing is certain but uncertainty.