One of my good friends, who is well-known for the newsletter he writes, put out a recommendation this month to buy the NASDAQ. He called the trade a sure thing and made the analogy to Jimmy Rogers saying that he only invests when the money was lying in the corner waiting to be picked up.. And my friend wasn't the only one to say "buy now." I'm seeing it all over the place from different investment newsletters.

My personal bias is that things look about as bad as they can be. There might be a short term rally, but certainly nothing significant and that the major direction of the market for a while is down.

So what does it mean that so many people are saying we're due for a rally? If you are writing a newsletter and your recommendations are starting to lose money, you don't want people to get upset. Consequently, you tell them that the market is going up and now is the time to buy. Worse case scenario is that the market continues to do what it is doing, going down, and your clients lose more money. But at least you've bought some more time.

But let's say, you get excited about such a recommendation and want to do it. The worst thing you can do is put all of your money at risk in such an investment because someone said it is a sure thing. My friend said to buy a double leveraged fund based upon the NASDAQ. If it goes up, he'd take profits when it's up 60% (i.e., when the NASDAQ is up 30%) and he'd sell if it's down 15% (i.e., when the NASDAQ is down 7.5%). Even though I don't like the recommendation, it is still a low risk deal. First, the potential gain is four times the potential loss. If the NASDAQ goes down 7.5%, my friend will say, "OK I was wrong lets get out" And if he's right, he makes 4 times his risk.

If you plan to do such an investment, however, you need to be very cautious about one thing in particular -- position sizing. Don't risk more than 1% of your portfolio in such a trade. Let's say you have a $50,000 portfolio and you only want to risk 1% or $500. If you invest, $3333 in this investment, and only take a 15% loss, then you've only risked 1% of your portfolio. Risking one percent on an idea with a potential 4% gain. Is usually a pretty good idea. And even if you are wrong 60% of the time with such ideas, overall you'd still make money. However, that is the only way to play such an idea. IT IS NOT SURE MONEY WAITING FOR YOU TO PICK IT UP.

But that's just my two cents worth.

Our model portfolio, started two weeks ago, had 7 short entries and three long entries. As of 3PM today, all three long entries were making money and six of the seven short entries were making money. Plus it looks like we'll be stopped out of one of the shorts for a 1% loss. But despite the loss, the overall portfolio is up over 2% in the two week period.