The 2010 trading year is over and it’s time to preview our plans for 2011. Here are some thoughts on three major segments of the investing market.

S&P 500

The S&P 500 is extremely overbought in almost every time frame and headline risk remains high. At current price levels I would not be interested in being long the S&P 500.

I think opportunities are going to present themselves in 2011 for outstanding longer term entries into the equities market; however a disciplined approach will be required. Some of the headline risks include continued monetary and fiscal issues in the euro zone, municipal budget concerns and potential defaults, potential for rising interest rates, inflation/deflation, and rising energy prices. Unfortunately some, if not all of these risks will likely come to pass. Having fresh capital ready to deploy and a trading plan in place ahead of time will likely lead to a positive trading outcome in 2011.

There are going to be some outstanding trading setups in 2011 regardless of market conditions or economic factors, but we need to have trading capital available and a trading plan prepared. The weekly chart below illustrates some key support levels on the S&P 500 e-mini contract.

S&P Mini contract

At some point in 2011, the S&P 500 will suffer from a correction and I intend to be prepared to take advantage of lower prices in my longer term investment accounts as well as in my short term option trading accounts. While I am generally a contrarian when sentiment and bullishness are this high, deep down I am hopeful that the economic recovery continues. However, I am not blind to believe that the worst is over and it is smooth sailing from here.

Oil

In my humble opinion, the single largest threat to the U.S. domestic economy is not unemployment or housing, but energy. If energy prices continue rising, it causes nearly everything to rise in price in the United States as producers and manufacturers pass down rising fuel costs to the consumer.

From a fundamental standpoint, oil supply appears to be declining and will continue to decline unless new oil fields that are discovered. Additionally, emerging market countries need more energy to keep their economies growing and to satisfy a rising standard of living.

If inflation were to rise suddenly this would also be bullish for energy. Most investors may not have considered that oil prices are over $90/barrel and the economy is relatively sluggish. Where would prices be if the economy booms in 2011?

From a technical standpoint, the Great Recession pushed oil down from its all time highs in 2008. If we view a weekly chart of oil, it would appear that we are continuing to trend higher and that in the longer term this trend will likely persist.

I would be shocked if oil prices do not reach at least $100/barrel in 2011. Some analysts are saying that it could reach $115-$120 by the summer and could probe all time highs as early as 2012.

Gold

The recent pullback offered a nice entry around the $133/share on the SPDR Gold Trust ETF (NYSE: GLD). I purchased GLD around $133.25 and sold a slew of naked puts on silver and gold which I have closed for solid gains. Gold appears to be nearing a final wave of buying which could push it to all time highs.

However, I believe that the volatility in the price of gold is likely to increase dramatically. Large price swings are likely in 2011 as headline risks will drastically impact the price of gold and silver and cause volatility to increase.

Gold continues to trend higher and fighting the trend makes little sense and could be a great way to lose precious trading capital. I will continue to play the rising trend until it fails which at some point in the future is inevitable. Neither gold, nor any other asset can continue rising forever. A pullback at some point is not only likely, but would be healthy. Obviously gold remains in a bullish uptrend as illustrated by the weekly chart below.

I do believe that gold is a solid hedge against currency risk and higher inflation based on recent price action, but I am not willing to buy into the world is ending philosophy that many gold bugs envision.

Conclusion

I am optimistic about the domestic and global economy in the long term. I believe that great opportunities for long term investment will be offered in 2011 and I intend to take advantage of the price action. I am an options trader at heart, but in the end I am an eternal optimist. Being pessimistic is not only depressing, but it offers very little in the form of solutions.

If you would like to receive my Free Options Strategy Guide & Trade Ideas join my free newsletter: www.OptionsTradingSignals.com/profitable-options-solutions.php