Hello Traders,

What do you do when the markets are all trading at highs or near highs.  I set up rules to follow.  I find it funny that people say that you should not invest when the market is at all time highs.  If that is the case you wouldn’t have entered the market as we continue to make new higher highs. If we don’t get new highs the market would never go up. I just find it funny that people would consider missing great opportunities in a bull market.

Obviously, there is risk in the market when at highs.  Here is what I am doing to mitigate risk.  I am setting up some rules to trade.  I think right now you could just get long the markets overall.  They are making aggressive moves and giving good returns.  I would assess that the trend is clearly up, but there is some risk of reversal.  I have set the following points in the markets as my guidelines to set up rules.  The rules should be set up to protect from a market reversal, to exit long trades, evaluate going short, or put on protection for long term investments.

I am going to use three support levels.  I will label them S1, S2, and S3.  I set up my rules for these points. I would strongly consider protection at all S2 levels, or if aggressive consider buying the market if signs point to continued bull market.  If S3 is broke, I would be looking at very aggressive short plays, strong protection, and executing my stops, or aggressive long positions with tight stops playing for the reversal. This level would have to show signs of holding support and a large spike in volume.  Again, a strong evaluation of the market conditions, and if you believe in the bull is still alive. If we go there I will probably have some thoughts on what I am doing.

SPY- Currently at 201.77

S1- 200.88 (Most recent high or what I would consider a buypoint with a good volume support or follow thru)

S2- 197.73

S3- 190 (Very close to the 200 DMA, and about 5% pull back)

DJX (1/100th of the Dow)- Currently at 173.66

S1- 172.81 (Most recent high or what I would consider a buypoint with a good volume support or follow thru)

S2- 171.36

S3- 166 (Very close to the 200 DMA, and about 5% pull back, and is also supported by the peaks from Jan-Apr)

QQQ- Currently at 101.70

S1- 100.11 (Most recent high or what I would consider a buypoint with a good volume support or follow thru)

S2- 96.99 (About 5% pull back)

S3- 92.24 (Very close to the 200 DMA, and about 10% pull back)

The Index That I am Playing-  IWM  

Currently trading at 116.36

R1 (These are the same as Supports but Resistance to the upside) – 116.88 THIS IS MY STRONG BUY POINT with strong volume or follow thru and indications of other markets remaining strong.

The Russell has lagged the uptrend and also gave us signs that the market was going to pull back prior.  If we don’t clear the buy point we could test the following support levels. I would have a plan for trades that support this thesis in case it does lead us down in our back pockets and we should also see some huge volatility spikes that become trade potential also if this occurs.

S1- 113.24 (200DMA)

S2- 108 (Lows that were tested between Jan-May)

S3- 104 (Most recent Low that held up with large volume and is a long term low support)

R1, S2, S3 are great trading points if you take the side you want and set stops.  Currently, the market seems to have the bullish bias.  Keep in mind this changes quickly.  If the Russell doesn’t participate in the rally and get through R1 I would look to make a plan to the down side testing the S2 and potentially the S3 levels in all the indexes I mentioned.

I will discuss in further posts what I would do with the above information and how to set up some good trade ideas with the info.

Happy Trading!