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So, where’s the Cannes Film Festival being held this year?

Christina Aguilera

What if September turned out to be incredibly bullish?

With the potential advent of war in Syria, Britain stepping back, and the US if they step-in, also risking a confrontation with Putin and Russia who have interests in the area, not to mention Putin’s ego, things could get a bit warm politically. Are the US public ready for yet another war? True, at the moment it is missile strikes, drones etc. Ground troops would be a very bad political move for all concerned.

The economic data continues to underwhelm. There is an emerging market crisis that mirrors the Asian crisis of 1997. Money is fleeing the countries that cannot fund trade deficits back to more liquid economies, the US and Europe seem to be the primary beneficiaries of this run to ‘quality’.

Geopolitical risk seems to have moved up a notch or two, US economic data is also weak after this earnings season, revenue growth has been poor, unemployment continues to be high, and housing has also disappointed. This should come as no surprise as the bounce in housing were the Hedge Funds buying up property. It was not a resurgence of individuals buying houses.

So, September, seasonally, a bad month to be in stocks.

There is across blogoland an [increasing] bearishness into the seasonally bad month of September. Sentiment can as often be as wrong as it is right. However with a lean in one direction, a move in the opposite can create a bigger move than might otherwise be expected.

The COT index number is +8.6%. However that is not the important factor here. Rather, there is a period over the next four to five weeks where there is a reasonable chance that there will be a run of positive COT numbers that argues against the bearish bias that we are currently seeing.

Technicals

The technical picture does not support this idea of September being bullish. The short term charts, 20day, 15day, 10day and 5day are all downward trends. The only element that has any bullish implication is that on all the short term charts we are closer to the bottom end of the range than the top end, and this wasn’t the case last week.

On that basis I am willing to speculate a little with a directional trade, which I will detail later. For the moment the trade is XXX which has been stuck in a trading range since about September 2011 ranging between about XXX and the XXX mark, which is where we are [more or less] currently.

Therefore buy a Call in an earlier month for the XXX level and trade it to the top of the range say $9.oo, where you would lock in the profit with a Put.

If the stock breaks out of the range to the upside, you are very favourably positioned. A break lower is not such a great position, but the damage is limited and contained by the Puts in the hedged position.

With such a long expiry, this position and the XXX trade become ideal candidates for multiple trades in a semi-hedged and thus lower risk capacity.

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