Strong day..

7am EST The market continues to rise in the face of mediocre-at-best news. If someone would have told you 12 months ago that GM would officially file for bankruptcy and the Dow would be up 200+ points, I'm sure you'd ask them to get their head examined. Yet the market continues to shrug off bad news and the buying continues.

The S&P 500 broke strongly over the 200 day moving average yesterday. This is usually a very bullish sign. While I am still in the camp of the bulls, I am very cautious. Most times, when an index breaks above the 200 day moving average, that is usually the "official beginning" of a bull market. This time I am a little skeptical. We have had a huge run in the market so far. The fundamentals of the economy are not supportive yet. There are some potentially huge problems out there like the commercial real estate market and the consumer credit market.

The bottom line here is that I am a trader. Traders allow the market to tell them how to invest. The best traders "turn their brain off" when it comes to making money. There are so many factors that go into any market that logic needs to be suspended many times. Markets are controlled by human beings making emotional decisions. Logic has to go out the window sometimes.

Yesterday, I put on my position in gold using the gold ETF (GLD). I bought the Nov 09 $190 calls for $1.00 each. Here is why. First of all, gold should only be a small part of any portfolio. There is little true value for the metal beyond the fact that people say there is value. Other metals like copper, platinum, and palladuim have industrial uses and the supply/demand dynamic is therefore dramatically different.

Second, the percentage gain available for calls that are this out of the money is huge. The risk is limited to the amount of the purchase plus trading costs. So, for a trade that is going to be a small amount of the overall portfolio, it makes sense to swing for the fences. There is little potential downside risk and huge up side potential with this strategy.

All traders should make trades within the context of their portfolio in order to maximize benefits and minimize risk. This is what I am doing with the GLD trade. I will be keeping the position size small but looking for a 200% - 300% goal for taking my first profits in this trade. Until next time, stay low risk..