Missles in October. A negative surprise markets have not discounted yet.

Fellow Friends and Traders,

Two weeks ago the S&P hit 1034. Friday saw another high of 1044. There has been no serious correction as the market grinds higher week after week. We'll get a much better picture next week with a ton of fundamental data, all of which is expected to be rather good. Remember it's not the data that's important but how the market reacts to the news. We continue to sell rallies into good news but buy the dips back.

Last week was no different. The S&P appeared set to break out of the 1038-40 multi-week resistance Friday morning only to fail and give us a 3X return on an aggressive put purchase in a few hours, followed by almost a 3X return on a call purchase into the End of Day (EOD) rally. Both trade returns were greatly enhanced with hedging profits. See the attached chart below.

If the market can get past last week highs we should get to 1055-60 rather quickly. Right now the world markets have clearly focused on the economic recovery rather than any geopolitical threats. However, it's those nasty surprises that can blind side us when least expected we must be on guard for.

After September 20th things could get sticky. Remember Iran has a date with the U.N. regarding its nuclear ambitions. Iran has already stated it has no intentions of stopping its nuclear push. If nothing is done Iran is projected to have a nuclear bomb sometime next year. Russia has already stated it will not support any UN moves to punish Iran. More dancing ahead.

There have already been quite a few rumors regarding this situation. Israeli papers confirm Netanyahu visiting Putin in Russia. The Russia papers denied the meeting ever took place. The Russia cargo ship that went missing for more than three weeks was rumored to contain the latest Russian anti-aircraft S-300 defense system bound for Iran.  Stratfor’s [a strategic intelligence services company] George Friedman, tells us if the Russians attempted to send these advanced defensive weapons to Iran, this situation could be an indication of a growing concern of an imminent air strike from either the US or Israel. The ship later turned-up with no cargo and returned to Russia.  I'm sure there is more happening behind the scenes worthy of another great spy novel.

I cannot see Obama bombing anyone let alone Iran. H. Clinton, our Secretary of State, may have let it slip when she spoke overseas a few weeks ago. She related how our Middle Eastern allies and Israel will fall under our nuclear umbrella protection. That's great news to Israel I'm sure. I'm guessing Israel will have no choice but to attack. Iran already publicly confirmed it wants to wipe Israel from the face of the earth.

I wouldn't be as concerned about the geopolitical risks if our markets have not rallied so far as to have discounted the next two years of stellar economic growth and appears vulnerable to a sudden shock. I'm always asking what can go wrong? I'm sure nothing will get done and everything will turn out just fine. I just don't trust Obama to do the right thing at the right time. It's always better to be forearmed and alerted than oblivious to the world around us.

Just my humble opinion. We'll continue to trade our brains out.