NEW YORK (Options Trading Signals) -- Investors who purchased stocks, gold or silver, and bonds anytime in 2009 were handsomely rewarded in 2010 if they held their positions.

How long will these assets continue to perform well? How long can gold pump out double-digit returns before suffering a bad year? How high can stocks climb when uncertainty surrounds the market? Price action is never wrong, but history reminds us that a particular asset class does not outperform all other asset classes consistently over long periods of time. Trees do not grow to the sky.

Since 2009, stocks, precious metals, and bonds have all had tremendous performance records. Most economists point to actions by the

Federal Reserve

as the primary reason. The central bank's interventions lowered interest rates to extremely low levels, which caused investors to take more risk for better returns. High levels of liquidity paired with low interest rates moved nearly every asset class higher, with stocks and precious metals earning outstanding year-over-year returns.

With 2011 just starting, will stocks, bonds, and precious metals continue rallying? When looking at probabilities and statistics the odds are not favorable that all three asset classes will remain outstanding investments. In fact, it is possible and arguably likely that at least one of the asset classes -- if not more than one -- will face headwinds in 2011 and beyond. Although Tuesday was only the second day of 2011, precious metals are under significant pressure, and the fundamental picture for bonds and stocks is uncertain.

S&P 500

The stock market is overbought currently on nearly every time frame. Some pundits are calling for another outstanding year while others believe a correction is likely to unfold. What I am certain of is that caution is called for right now. I would not be afraid to take profits and adjust stops to protect my trading and investment capital at these levels. Risk seems excruciatingly high, and when we look at a longer-term chart of the S&P 500 it is rather easy to surmise that a pullback may take place.

Gold and Silver Futures Daily Charts

Precious Metals

If price action at the beginning of this week is any indication, a nasty correction or pullback for gold and silver may be in the cards. I have been warning about the possibility of such an event and as usual have received countless emails and even some veiled threats. Gold may go up for years, but most assets do not trade straight up. Prices ebb and flow with the marketplace, and buyers and sellers come together in the process of price discovery.

If this is the start of a correction in gold, a potentially outstanding purchasing opportunity is possible for patient traders and investors. Although the gold bugs fill up my email inbox with hate mail, I wait patiently to enter at lower prices. The daily charts of gold and silver futures above illustrate key support levels that would likely offer solid risk/reward entries.

Bonds

Most traders and investors who started their careers in the 1980s have witnessed a bull market in bonds as yields went from double digits to the lowest interest rates in history over the past 20-30 years. New all-time records could be set in the future, but strong fundamental headwinds exist. Overexposure to bonds could prove dangerous, and diversification regarding duration, currency exposure, and geography remains paramount.

Many pundits and economists are showing considerable concern about municipal and Treasury bonds. Defaults are being discussed openly in the municipal space, and there is additional concern that interest rates could continue to rise on U.S. Treasury obligations, against the Federal Reserve's wishes. Both scenarios are not pleasant and certainly would affect bond pricing. Municipals have been under pressure, which is evident from the daily chart of the

iShares S&P National AMT-Free Municipal Bond

(MUB) - Get Report

shown below. Additionally, I have displayed a weekly chart of

iShares Barclays 20+ Year Treas Bond

(TLT) - Get Report

with additional technical analysis.

MUB Daily Chart

TLT Weekly Chart

I have no idea what is going to happen over the next 12 months in financial markets. What I do know is that equities, precious metals and bonds have been providing outstanding returns for more than a year. Although I realize that there are fundamental and technical drivers impacting the price action, I would be remiss if I did not remind traders and investors that taking profits is never a bad strategy. While all three asset classes may power higher by the end of the year, at some point in 2011 it is possible that all three asset classes may potentially go through a pullback. By taking profits, traders allow themselves the opportunity to put fresh capital to work at potentially lower prices sometime in the future.

A patient trader who uses fresh capital to buy assets at lower prices compounds his/her returns while selling when prices are relatively high and buying when prices move lower. By no means am I saying to sell everything and move to cash, but when bullish sentiment is so pronounced and the price action looks extremely overbought, taking profits is something worth considering. At some point we know at least one of these asset classes will lag going forward simply because it has been working well for such a long time.

Statistical probability dictates that every month that passes with higher prices brings us closer to a correction or pullback. Those who are prudent and take profits while raising cash levels along the way will have capital to take advantage of lower prices. In addition to taking profits, investors should also consider moving stops and limiting their risk profiles. There will always be new opportunities, but replenishing capital is seemingly harder by the day.

The great thing about options is that if you know all the strategies available then you can make money in virtually any market condition. Our recent trades in December and January thus far using options have been:

Amazon

(AMZN) - Get Report

(8%),

United States Oil

(USO) - Get Report

(15%),

ProShares UltraShort 20-plus year Treasury

(TBT) - Get Report

(58%),

SPDR S&P 500 ETF

(break even). Our

IBM

(IBM) - Get Report

trade is currently open.

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At the time of publication, Jones had no positions in S&P 500 futures or ETFs, gold futures, silver futures, MUB or TLT

.